Rate Lock
A lender's guarantee to hold a specific interest rate (and points) for a set number of days while the loan is processed, protecting the borrower from rate increases before closing.
A rate lock is the lender's commitment to honor a quoted interest rate and point structure for a defined period — typically 15, 30, 45, or 60 days — regardless of how the market moves before you close. It removes the risk that rates jump between your quote and your funding date.
Why it matters in investor lending
Investor loans like DSCR products often price off a market index plus a margin, and those indexes move daily. On a purchase with a fixed closing date, an unlocked rate could rise enough to push the DSCR below the lender's threshold or blow up your projected cash flow. Locking pins the rate so your underwriting numbers hold.
How it works
- You and the lender agree on a rate and cost at par or with points/credits.
- The lender issues a lock confirmation stating the rate, points, and expiration date.
- If you close before expiration, you get that rate — even if market rates rose.
- If the market falls, you're generally still bound to the locked rate (some lenders offer a one-time 'float-down' option for a fee).
A worked example
An investor locks 8.25% for 45 days on a rental purchase. Three weeks later the SOFR-based index spikes and comparable rates climb to 8.75%. Because of the lock, the investor still closes at 8.25%, saving meaningful monthly cash flow. Had they let the lock expire, they'd face a costly re-lock or extension fee (often 0.125–0.25 points) and the new, higher rate.
How it's used in investor lending
Match the lock length to your realistic timeline to close. A 30-day lock on a deal that needs an appraisal, title commitment, and survey can expire mid-process, forcing an extension. Investors juggling multiple closings should lock conservatively and watch expiration dates, because a blown lock can wipe out a thin margin. Longer locks usually cost slightly more in rate or points — that premium is the price of certainty.
This is general information, not financial advice.
Frequently asked questions
How long should I lock my rate?
Match the lock to your realistic time to close, then add a small buffer. Purchases with appraisal, title, and survey contingencies often need 30 to 45 days. Locking too short risks an expensive extension; locking too long usually costs a bit more in rate or points. Ask your lender how long their current pipeline takes to close.
What happens if rates drop after I lock?
You're normally bound to the locked rate even if the market falls. Some lenders offer a one-time 'float-down' that lets you capture a lower rate for a fee, but it's not automatic. Read your lock agreement to see whether a float-down is available.
What if my rate lock expires before closing?
You'll typically need a lock extension (a fee, often 0.125 to 0.25 points) or a re-lock at current market rates, whichever your lender allows. If rates rose during the delay, a re-lock could be significantly more expensive, so manage your timeline carefully.