If you believe that financial market fluctuations will lead to higher rates before you close on your house - or you simply want to avoid that risk - you should consider locking as soon as you've made your application. The downside is that, if financial markets push rates lower, you may miss out on a getting a lower rate and a lower monthly payment.

When you lock:

1. Your loan pricing is protected from changes in financial market conditions.
2. Your final rate will reflect the pricing that was available at the time you locked in for loans with your specific transaction characteristics (points paid, loan-to-value, etc.) and your credit profile.
3. You can select a specific length of time, usually 30 or 60 days - but sometimes as long as a year.
4. You can lock anytime you locate a property, or start your refinancing process, up until five business days before the closing.
5. Returning to a float status after you've locked typically involves an additional fee.

Because interest rates can fluctuate, it sometimes pays to lock in an attractive interest rate. A lock-in is a lender's commitment to guarantee a specific interest rate if you purchase a home within a certain period of time. If interest rates are rising, or if they have been volatile, locking in a rate can give you some peace of mind. When the economy is strong, money is "loose" and interest rates are relatively stable, lenders are usually more willing to lock in rates. Deciding whether and when to lock is more art than science because it involves guesswork. The decision depends upon how much you will have to pay to lock, how long you plan to have the mortgage and what you guess will happen to rates.

Generally, you can expect to pay from a quarter of a point to a half a point to extend a rate lock for 30 more days. In other words, if your lender lets you lock free within 30 days of closing, you might pay one-quarter to one-half a point to lock for 60 days. A 90-day extension is likely to cost a point, maybe more. If you are closing within ninety days, there is a strong possibility a further increase in the Fed rate may occur. In any event there is very little likelihood it will decrease during this period. Therefore, you may find it wise to tell your banker that you are pre-disposed to contract for a specific rate at the prevailing rate of 6.25%, but that you would like a guarantee that if the rate falls to 6% previous to your closing, you want the lower rate. Your institution may not give you the option to edge down, but it is a very competitive environment.