Rate Lock Agreements: Timing is Key via Commercial Property Executive

Location is often described as the key to a successful real estate transaction. While generally true, timing also plays an important role, especially when entering into an interest rate lock agreement as part of a financing transaction. Locking an interest rate usually occurs when negotiation of the loan documents is concluding and the parties are ready to close. However, at this point, the borrower has lost most of its leverage to request any changes to the rate lock agreement. The lender knows it is unlikely that the borrower will walk away from the transaction because of a disagreement over the terms in the rate lock agreement.

In addition to losing leverage, borrowers should also be conscious of market factors. As has recently occurred, interest rates can sometimes spike up quickly, which, depending on the magnitude, and the size of the loan, may make it impractical to close a loan that was otherwise about to close. Requesting a copy of the rate lock agreement early on in the transaction and proposing modifications as soon as possible affords the borrower the opportunity to better understand the terms in the rate lock agreement in the event rising interest rates cause the borrower to want to quickly lock an interest rate, as well as providing time to negotiate provisions that are often not negotiated due to time constraints on locking a favorable rate. A few types of provisions that, given time, can be negotiated, but often are not, are:

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