Rate Protection

Rate protection is the protection offered to a borrower by the lender against any rise in interest rates between the time of application and loan closing.

Because it would be unethical to quote a mortgage applicant a specific interest rate and later charge a higher one at closing, rate protection helps to eliminate such situations which can potentially lead to the involvement of the FTC.

This is despite the possibility of the costs of credit which a lender would incur should interest rates rise exponentially when a borrower is in the midst of the application process.

So in actuality, rate protection is a generous gesture from lenders.

They are not obligated to do it. But doing so will make applicants happy, and help them avoid problems with the authorities.

The protection often take the form of a lock or a float down.

However, it must be noted that this protection offered by lenders will always have a specified active period. And the protection will cease when the period expires without closing.

This is because it would be unfair towards a lender to commit to a home loan to a borrower who ends up only signing up for the facility a year later.