{"id":5361,"date":"2018-02-21T04:29:51","date_gmt":"2018-02-21T04:29:51","guid":{"rendered":"http:\/\/www.realestatewords.com\/?page_id=5361"},"modified":"2021-11-03T20:09:56","modified_gmt":"2021-11-03T20:09:56","slug":"lock-in-clause","status":"publish","type":"page","link":"https:\/\/www.realestatewords.com\/lock-in-clause\/","title":{"rendered":"Lock-In Clause"},"content":{"rendered":"

\u201cLock-In\u201d Clause Definition<\/h2>\n

A “lock-in” clause<\/strong> is a clause in a debt instrument that prohibits an early retirement of the debt for a specific period of time, or in some cases, for the entirety of the debt instrument duration.<\/p>\n

Explanation<\/h2>\n

Historically there have been many reasons for lock-in clauses. In connection with real estate, a lender loans money to a borrower at a certain interest rate, and wants to make sure that he will continue to receive that rate of interest for a specific length of time, because the interest rate is higher than the lender would receive by putting his money in the stock market.<\/p>\n

When used, it is most usually seen in privately carried real estate contracts and deeds of trust.<\/p>\n

A seller sells his house to a buyer, and the buyer is going to make monthly payments to the seller, and the seller agrees to \u201ccarry the contract\u201d at a certain interest rate for a certain number of years. The vast majority of such private agreements include language that protects the buyer, allowing early payoff at any time the buyer selects.<\/p>\n

But in some instances, the seller, aka the \u201cholder of the note<\/a>\u201d, may suffer negative income tax ramifications if the buyer pays the note off early. In connection with commercial or institutional lenders, the desire to receive a certain interest rate for a certain period of time actually gave rise to \u201cearly payoff penalties<\/a>\u201d in the past.<\/p>\n

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