When it comes to obtaining a mortgage loan, borrowers often enter into a rate lock agreement with their lender. But what exactly is a borrower rate lock agreement?
A borrower rate lock agreement is a contract between the borrower and the lender that guarantees a specific interest rate for a certain period of time. This agreement is typically entered into after the borrower has completed the loan application process and the lender has approved their loan.
The purpose of a rate lock agreement is to protect the borrower from sudden interest rate increases while they are waiting for their loan to close. This is particularly important in a volatile interest rate market where rates can fluctuate rapidly.
The agreement specifies the interest rate, the length of the rate lock period, and any fees associated with the rate lock. Typically, the longer the rate lock period, the higher the associated fees.
It’s important to note that a rate lock agreement is not a guarantee that the borrower will receive the loan. The loan must still go through the underwriting process and meet all the lender’s requirements before it can be funded.
Borrowers should also be aware that rate lock agreements are not indefinite. If the loan does not close within the specified rate lock period, the agreement may expire and the borrower may have to pay additional fees to extend the rate lock.
In conclusion, a borrower rate lock agreement is an important contract that helps protect borrowers from sudden interest rate increases while they are waiting for their loan to close. It’s important for borrowers to carefully review and understand the terms of the agreement before signing.