A rate lock in refinancing a mortgage is an agreement between the borrower and the lender to lock in a specific interest rate for a certain period of time. The rate lock agreement ensures that the borrower will receive the agreed-upon interest rate even if market rates fluctuate before the loan closes.
Rate locks can be important for borrowers who are concerned about interest rate fluctuations during the mortgage refinancing process. If market rates rise between the time a borrower applies for a refinance loan and the time the loan closes, the borrower could end up paying a higher interest rate than they anticipated. A rate lock agreement protects the borrower from this risk by guaranteeing the interest rate for a set period of time.
However, it’s important to note that rate locks may come with additional fees, and they can be a double-edged sword. If market rates fall during the rate lock period, the borrower may end up with a higher interest rate than they could have gotten by waiting to lock in a rate. It’s important to carefully consider the costs and benefits of rate locks before agreeing to one.