In one sentence
An agreement fixing the loan's interest rate for a set period, protecting the borrower from rate movement between commitment and closing.
The longer version
Rate locks matter most on long fixed-rate loans where a small rate move is meaningful money. The lock has a term, a cost, and usually breakage consequences if the loan does not close in time.
The lock date puts a hard deadline on the closing, which makes it one of the calendar's fixed points and a reason diligence delays get expensive.
Common questions
- What is a rate lock on a commercial loan?
- An agreement fixing the interest rate, or its index component, for a set period between commitment and closing, protecting the borrower from rate movement.
- What happens if the loan does not close during the rate lock?
- The lock expires, and the borrower may owe breakage costs if the lender has hedged the rate. An extension may be available for a fee.
- Is a rate lock deposit refundable?
- Usually only if the loan closes or the lender fails to perform. If the borrower walks away, the deposit typically covers the lender's breakage and costs.
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