Loan Lock

Loan Lock: What It Means and How It Works

Key takeaways

• A loan lock (rate lock) guarantees a mortgage interest rate for a specified period, protecting the borrower from rate increases during that time.
• Locks usually last 30, 45, or 60 days and may incur a fee or a slightly higher rate.
• Optional features—such as a float-down—allow a borrower to benefit from falling rates but typically add cost.

What is a loan lock?

A loan lock is an agreement between a borrower and a lender that fixes the mortgage interest rate for a defined time window (the lock period). When a rate is locked, the lender guarantees to honor that rate at closing as long as the loan closes within the lock period and the borrower’s application and property qualifications remain the same.

How it works

• Rate quote: Lenders quote rates that reflect current market conditions plus their margin.
• Locking: The borrower requests a lock to protect against rising rates. The lender confirms the rate and the lock duration.
• Points and fees: Locks can be offered with points (upfront fees that lower the rate) or with a fee for the lock itself.
• Lock period: Common lengths are 30, 45, or 60 days; lenders may offer shorter or longer periods.
• Extensions: If the loan doesn’t close before the lock expires, the borrower can often extend the lock for a fee or accept a higher rate.
• Float-down option: Some lenders allow a one-time float-down to a lower rate if market rates fall during the lock—usually for an extra fee or cost.

Pros and cons

Pros
* Protects borrowers from rising interest rates and unexpected increases in monthly payment before closing.
* Helps buyers budget and present a stronger offer in competitive markets.

Cons
* If rates fall after locking, the borrower can miss out unless they paid for a float-down.
* Extensions and float-downs usually cost extra; prolonged closing delays can be expensive.

Loan lock vs. loan commitment

A loan lock secures an interest rate for a set period. A loan commitment (in mortgage contexts) is the lender’s written promise to lend a specified amount; it may or may not include a rate lock. Sellers often prefer offers backed by a lender’s commitment because it reduces financing risk.

When to lock vs. wait

If you are under contract and closing is expected within the lock period, locking is often prudent to avoid rate increases. If you expect rates to drop and can tolerate the risk, you might wait—but consider the potential for rates to rise before closing. Adding a float-down provides a middle ground at additional cost.

Typical lock lengths and extensions

• Common lock periods: 30, 45, 60 days.
• Short locks may expire soon after loan approval; the lender must provide enough time to process the file.
• Extensions are usually available for a fee or by accepting a slightly higher rate.

Bottom line

A loan lock reduces uncertainty by guaranteeing an interest rate for a defined period, protecting borrowers from rate increases before closing. That protection comes with trade-offs: potential fees, limits on benefiting from lower rates unless a float-down is purchased, and costs if the lock needs extension.

Source: Consumer Financial Protection Bureau (CFPB)