Finance
An interest rate 'lock' in a mortgage transaction means:
AThe borrower can never refinance the loan
BThe lender guarantees the interest rate for a specified period, protecting the borrower from rate increases before closing✓ Correct
CThe lender can change the rate at any time before closing
DThe rate is locked permanently for the life of the loan
Explanation
A rate lock is a lender's commitment to hold a specified interest rate for the borrower for a defined period (typically 30-60 days), protecting the borrower from rate increases while the loan is being processed.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
Math Concepts
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