Lock Period

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.

Investopedia explains '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.


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