What is a rate lock and why is it used?

• A. A lock to seal the property purchase agreement.
• B. A guarantee of closing on a fixed date.
• C. A method of fixing the appraisal value.
• D. A commitment to lend at a specified rate/points for a period, protecting the borrower from rate fluctuations during processing.

Answer: (D)

Rate lock is a lender’s commitment to lend at a specific interest rate (and usually the associated points) for a defined period, protecting the borrower from rate fluctuations while the loan is processed. This gives certainty about the loan cost and monthly payment, as long as the file closes within the lock period and the loan terms stay the same. If rates move after the lock but the loan closes in time, the borrower keeps the locked rate; if the lock expires, a new rate could apply. Some locks allow a float-down option or carry a fee. The other descriptions aren’t what a rate lock does: sealing the purchase agreement, guaranteeing a fixed closing date, or fixing the appraisal value.