What is the typical purpose of a "rate lock"?

The typical purpose of a "rate lock" is to secure an interest rate for a set period while a borrower completes the mortgage application process. Rate locks are crucial for borrowers because they protect against fluctuations in interest rates during the period between application and the closing of the loan. By locking in a rate, borrowers can ensure that their monthly payments will be based on that locked-in percentage, mitigating the risk of rising rates that could occur before the final loan approval and closing. This is especially important in volatile markets where interest rates can change frequently and significantly.

Other options do not accurately capture the primary function of a rate lock. Adjusting the terms of the loan agreement typically occurs after the application and is part of a different process entirely. Lowering closing costs is unrelated to the rate lock concept, which focuses specifically on interest rates rather than costs incurred during the transaction. Lastly, changing the loan type to a fixed-rate mortgage is a separate decision and is not a direct function of a rate lock, which is simply concerned with the interest rate itself.