A "lock-in" is a lender's promise to hold a certain rate and points while the loan is processed. A lock-in can protect you from rate increases but it can also prevent you from taking advantage of a rate decrease. 

To determine what is best for you depends upon how soon you anticipate the loan to close or how rapidly the rate environment is expected to change.  It may be wise to obtain a blank copy of the lenders lock-in contract before applying for a loan. Some lenders may charge a fee up-front which may not be refundable if you withdraw your application, the loan does not close, or credit is denied.  Fees vary among lenders and may depend upon the length of the lock-in period.    

Lock-in periods are usually for 30 or 60 days and include the following three options: 1) locked rate & points, 2) locked rate & floating points, and 3) floating rate & points.  The lock-in period you select should be long enough to complete settlement.  If the mortgage loan cannot be closed by the end of the lock-in period, prevailing rates and points are usually charged. 

Some borrowers literally wait for years to refinance or purchase just to get the lowest rate. Waiting to save 1/4% on falling rates, they may lose sight of the real savings in reducing an existing 9% rate to 7.5%.  Besides, rates can literally change hour by hour in an active market and tend to increase very quickly but drop slowly.  Check rates frequently.  While your lender should keep your informed of current rates if you are "floating", it is the borrower's decision when to actually "lock-in".

Lenders often charge a fee to hedge the risk that interest rates may change.  The longer the lock period, the more risk the lender takes. Holding interest rate products is an expense to a lender usually expressed in terms of higher discount points to the borrower. 

How do I lock-in an interest rate?

Most all lenders should have a written pricing agreement separate from the application form that both parties must sign to guarantee a "locked-in" rate.   If you are asked to "lock-in" over the phone, be sure to follow up for a written confirmation.  Generally, you do not lock-in when you sign the application unless you specifically request this.  Most states have laws defining what constitutes an actual "lock-in."

What to ask?

• Do I "lock-in" when I complete the application or when my loan is approved?
• Will the "lock-in" be in writing and may I review a blank contract?
• Are any fees charged for the "lock" and do they vary with the period of lock-in?
• Can I float now and "lock-in" later?
• May I take advantage of any rate decrease and is there an additional charge?
• If I cancel the application, will I receive any refund?
• How long will it take to process the loan?  (Heavy loan volume will increase processing time)

Caveats

1. Obtain any rate "lock-in" agreement in writing apart from the loan application. 
2. If using a mortgage broker, make sure the "lock-in" is from the "actual" lender who will be making the loan.
3. If a rate sounds too good to be true, it probably is. Be cautious with lenders offering "teaser" rates - get it in writing!
4. If "lock-in" fees are required, get written confirmation of how these  fees will be refunded or credited at closing.

Note:   Delays caused by a lenders  failure to diligently process your loan may give special cause to request a refund of  fees or attempt to reach a mutually agreeable settlement.  Some  lender actions such as the offering of lock-in terms that are impossible to fulfill, could be illegal.  Most lenders offer competitive rates which do not vary a significant degree.  Beware of unusually low "teaser" rates that the lender is not willing to put in writing or offsets with extremely  high points or fees.  Consult with an attorney or contact the appropriate federal or state regulatory agency if you suspect  improper practices.