Good question. Your outside handle set has a centered key plug, while your thumb lever is offset down. That means you will not be able to pop a a key cylinder in your handle. That said, you will need a new handle set, like our 82-044, with a 82-315 key lock. Take a look at the video below for more details.
The screw posts on the 82-044 do stick out a little, yes. At 9/32" diameter, they're designed to fit inside the holes in the door. That said, I've seen some older doors whose holes were too narrow to accommodate this size. Whenever I encounter that, I just take a rat tail file and widen them a hair. It doesn't usually take much, just enough to get them to fit.
That said, most of the time I find that the holes in a door are wide enough to accept the screw posts. It's rarely an issue, but when it is the solution is simple.
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When you're referring to a knock out hole, are you talking about the one that's on the handle that's currently installed on your door? Assuming that your style is identical to the photos above, then you should be able to knock that hole out, yes. This is centered and made specifically to allow the installation of a key lock. Just make sure that the hole is in alignment with the mortise slot; just because the hole is centered doesn't mean the slot will be.
Our 82-310 key lock should be compatible with this original handle. Alternatively, we sell the 82-030A. This is a complete handle set that comes with a key lock already installed in the center position. You wouldn't have to knock anything out, you can just put it right in your door. It should be compatible with all the existing hardware.
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