Lock In Periods

A lock in period is a set amount of time that a lender agrees to hold an agreed upon interest rate and fees for a borrower before a mortgage loan is closed. Because rates and fees can often fluctuate, this is a way for you as the buyer to know exactly what your costs will be, even if rates change the next week while you’re still waiting for your loan to be approved.

For example, if you were to make an offer on a house that was contingent on proper financing, you might go to the bank and apply for a loan at 6.5%. If the bank ‘locked in’ that rate for you at the time of application, even if the loan isn’t approved or closed right away, you’ll still have a 6.5% interest rate waiting when it does, provided the loan is processed during this lock in period.

This can work both in your favor and against it – while a lock in period allows you to budget properly and prevents increases in costs – it can also allow the lender to refuse lowering the costs should they decrease during the same period. So if you lock in at 6.5% and rates go up to 7% - you’ll win, but if they dip to 6%, the lender doesn’t have to lower your rate, even if it’s not a done deal quite yet. (Most will, but be sure to ask before locking-in to make sure!)

It’s always a good idea to get any lock-in period confirmed in writing from the lender. While most will honor even oral agreements, there may be circumstances where interest rates climb sharply and they may try to pass the extra costs along.

A lender is allowed to charge fees locking in an interest rate and fees, but not all do. This fee may be non-refundable even if the loan doesn’t close for any reason – so be sure to inquire about the particulars if you’re trying to lock in early on.

How long a lock in period lasts depends on the lender and your particular agreement, but between 30 and 60 days is most common.