Legal Definitions - locked-in rate

A locked-in rate refers to an interest rate or price that has been guaranteed and fixed for a specific period, typically to protect a consumer or business from market fluctuations. Once a rate is "locked in," it will not change, even if prevailing market rates increase or decrease during the agreed-upon period. This provides certainty and predictability regarding future payments or returns.

Here are some examples illustrating how a locked-in rate works:

• Mortgage Application: A couple is in the process of buying a new home. They apply for a mortgage and, seeing that interest rates are favorable, decide to lock in a 30-year fixed interest rate of 4.5% for 60 days. This means that even if general mortgage rates in the market rise to 5.0% before their loan officially closes, they are still guaranteed to receive the 4.5% rate they locked in. This protects them from potential increases in their monthly payments.

• Certificate of Deposit (CD): An individual wants to save money for retirement and invests in a 3-year Certificate of Deposit (CD) at their bank. The bank offers a 2.75% annual interest rate, which is a locked-in rate for the entire three-year term. Regardless of whether the Federal Reserve raises or lowers interest rates over the next three years, the individual is guaranteed to earn 2.75% interest on their deposit annually until the CD matures.

• Business Loan for Equipment: A manufacturing company needs to purchase new machinery and secures a business loan. The lender offers a locked-in rate of 6% for the first five years of the loan. This agreement ensures that the company's interest payments will remain constant for that initial period, allowing them to accurately forecast their expenses and manage their budget without concern for market interest rate volatility affecting their loan costs.