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.

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. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Adjustable-Rate Mortgage - ARM

    A type of mortgage in which the interest rate paid on the outstanding ...
  3. Treasury Lock

    A hedging tool used to manage interest-rate risk by effectively ...
  4. Variable Interest Rate

    An interest rate on a loan or security that fluctuates over time, ...
  5. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
  6. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Insurance

    ARMed And Dangerous

    In a climate of rising interest rates, having an adjustable-rate mortgage can be risky.
  3. Home & Auto

    Got A Good Mortgage Rate? Lock It Up!

    Rising rates mean rising profits for lenders, providing incentive to increase rates whenever possible.
  4. Credit & Loans

    Mortgages: Fixed-Rate Versus Adjustable-Rate

    Both of these have advantages and disadvantages depending on your financial needs and prospects.
  5. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  6. Taxes

    Tax Deductions On Mortgage Interest

    If you're a homeowner, this is one item you want to understand and use on your return.
  7. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  8. Retirement

    Best Mortgage Companies Friendly to Retirees

    If you’re no longer in the workforce and need a loan to buy a home, which companies are the most welcoming? Plus, good news about qualifying for a loan.
  9. Credit & Loans

    Don't Get Overcharged for Your Mortgage

    Don't pay more for a mortgage than necessary. Here’s a quick look at the different categories and how to be sure you're getting the best deal.
  10. Credit & Loans

    What is an Alt-A Mortgage?

    Called "liar loans" for their low documentation requirements, Alt-A mortgages were hot until the subprime crisis. Now Wall Street wants to bring them back.
RELATED FAQS
  1. Do FHA loans require escrow accounts?

    Federal Housing Administration (FHA) loans require escrow accounts for property taxes, homeowners insurance and mortgage ... Read Full Answer >>
  2. Do FHA loans have prepayment penalties?

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not ... Read Full Answer >>
  3. Can FHA loans be refinanced?

    Federal Housing Administration (FHA) loans can be refinanced in several ways. According to the U.S. Department of Housing ... Read Full Answer >>
  4. Can FHA loans be used for investment property?

    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
  5. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  6. How many FHA loans can I have?

    Generally, the Federal Housing Administration (FHA) does not insure more than one mortgage per borrower. This is to prevent ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center