As a homeowner, you’ve likely heard of a mortgage lock-in agreement. But have you heard of a lock rate agreement?

A lock rate agreement is a contract between a lender and a borrower that guarantees a specific interest rate for a set period of time, typically 30 to 60 days. This agreement allows the borrower to lock in a favorable interest rate while they shop for a home.

Why is this important? Interest rates are constantly fluctuating, and a small change in rate can make a big difference in a borrower’s monthly mortgage payment. Locking in a rate can provide peace of mind to borrowers who are concerned about rates increasing while they’re in the process of purchasing a home.

It’s important to note that a lock rate agreement is not the same as a mortgage commitment. While a lock rate agreement guarantees the interest rate for a set period of time, a mortgage commitment is a promise from the lender to provide financing for a specific property.

Lock rate agreements are typically offered by mortgage brokers and lenders. It’s important to shop around and compare offers from multiple providers to ensure you’re getting the best rate and terms for your situation.

When considering a lock rate agreement, it’s important to read the fine print. Some agreements may include a “float down” provision, which allows the borrower to take advantage of a lower interest rate if rates have dropped during the lock period. However, this provision may come with additional fees.

In addition, it’s important to understand the consequences of breaking a lock rate agreement. If a borrower decides not to proceed with the loan or decides to switch lenders, they may be subject to fees or penalties.

In summary, a lock rate agreement can provide peace of mind to borrowers while they shop for a home. However, it’s important to shop around, read the fine print, and understand the consequences of breaking the agreement before signing on the dotted line.