DEFINITION of 'Lock Period '

A number of days, often 30 or 60, during which the interest rate promised on a pending mortgage loan cannot be changed. Because mortgage interest rates can fluctuate while you are shopping for a home, borrowers who are waiting to close on a home can face uncertainty as to what their interest rate will be. The more expensive the home, the greater the impact the final interest rate will have on their monthly payment. The lock period helps borrowers manage the risk that interest rates may rise above what they are able and willing to pay.

BREAKING DOWN 'Lock Period '

While taking away the risk associated with rising interest rates, agreeing to a lock period generally means forgoing the possibility of a lower rate. However, some lenders allow borrowers a one-time rate decrease if interest rates decline during the lock period.


One problem with lock periods is that if the home purchase is not finalized before the lock period expires, the borrower still faces interest rate uncertainty. A safeguard against this possibility is a contingency clause in the home purchase agreement allowing the buyer to terminate the deal if he cannot obtain a specified interest rate.

RELATED TERMS
  1. Loan Lock

    The securing of a specified interest rate on a mortgage that ...
  2. Mortgage Rate Lock Float Down

    A mortgage rate lock with the option to reduce the locked interest ...
  3. Variable Rate Mortgage

    A type of home loan in which the interest rate is not fixed. ...
  4. Treasury Lock

    A hedging tool used to manage interest-rate risk by effectively ...
  5. Mortgage Rate

    The rate of interest charged on a mortgage. Mortgage rates are ...
  6. Mortgage

    A debt instrument, secured by the collateral of specified real ...
Related Articles
  1. Personal Finance

    Got a Good Mortgage Rate? Lock It Up!

    Rising rates mean rising profits for lenders, providing incentive to increase rates whenever possible.
  2. Managing Wealth

    Selling Your House Before an Interest Rate Hike?

    Learn about the potential advantages and disadvantages of selling a home before or after an increase in the national interest rate.
  3. Managing Wealth

    Buying a House Before an Interest Rate Hike

    Find out how a Fed rate hike would impact aspiring homebuyers, why rates increase, and whether now is the right time to buy a house.
  4. Investing

    10 Ways to Profit From an Interest Rate Increase

    Discover 10 possible ways that individual investors and businesses can potentially profit from an environment of rising interest rates.
  5. Personal Finance

    How Interest Rates Work On A Mortgage

    A step-by-step explanation of the interest calculations, mortgage types, and how the loan is eventually "retired" – which means paid off.
  6. Personal Finance

    Finding the Best Mortgage Rates in 2017

    As home-buying technology has progressed, the process of finding the best mortgages rates can all be done online. Here's how:
  7. Investing

    The Most Important Factors that Affect Mortgage Rates

    Discover what the most important factors are that affect mortgage interest rates. Factors range from inflation and economic growth to Federal Reserve activity, .
  8. Trading

    How To Borrow For Free

    People will do anything to get a little extra money. If you need some cash, here are some ways you can borrow without much hassle.
  9. Personal Finance

    Adjustable Rate Mortgage: What Happens When Interest Rates Go Up

    Adjustable rate mortgages can save borrowers money, but they can't go into it blind. In order to benefit from an ARM, you have to understand how it works.
RELATED FAQS
  1. How can an investor reduce interest rate risk?

    Learn about the different ways investors can reduce interest rate risk. Locking in interest rates increases certainty for ... Read Answer >>
  2. Which is better, a fixed or variable rate loan?

    Interest on variable interest rate loans vary as market interest rates change. Interest on fixed interest rate loans will ... Read Answer >>
Hot Definitions
  1. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  5. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  6. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
Trading Center