Legal Definitions - lock rate

Definition: Lock rate refers to the interest rate that a borrower agrees to pay on a loan, which is fixed for a specific period of time. This means that the interest rate will not change during the lock period, even if market rates fluctuate.

Example: John is buying a house and has been offered a mortgage loan with an interest rate of 4%. However, he is worried that the interest rates may increase in the future, which would make his monthly payments higher. To avoid this risk, John decides to lock in the interest rate at 4% for a period of 60 days. This means that even if the interest rates increase during this period, John will still pay only 4% interest on his mortgage loan.

Explanation: Locking in a rate provides borrowers with a sense of security and stability, as they know exactly how much they will be paying each month. This is particularly important for those who are on a tight budget or have limited financial resources. By locking in a rate, borrowers can avoid the risk of rising interest rates, which could make their loan payments unaffordable.