What does a "rate lock" mean?
Many borrowers do not want to be surprised at the close of the
transaction with a rate which is higher than what was quoted at
the beginning of the process. Hence, many borrowers ask that the
lender commit or "lock" the initial rate quoted for a period of
time sufficient to close the transaction.
When a rate is "locked" the lender is being asked to guarantee
the price of a commodity, the price of which changes daily. (Check
out the daily changes in the bond market, which is a measure of
the price of money on a daily basis.) The longer the lock period,
the riskier the position of the lender, hence the higher the loan
price (points) charged the borrower.
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