Because many borrowers would like to pin down what they are going to have to pay, lenders offer protection against the risk that the rates and points will change between the time they apply for a loan and the time the loan is closed. On home purchase transactions, the lock-in period ranges generally from 15 to 90 days. In cases where a home is being built, however, it may be longer, while on refinance transactions it may be shorter. If the loan is not closed within the stipulated period, the protection expires and you either have to accept the terms quoted by the lender on new loans at that time, or start the shopping process anew. In this case you end up paying the rates and points prevailing at the time the loan closes, which could be higher or lower than they were when you started the process.
Locks are risky to lenders and the risk is greater as the lock-in period gets longer.
If interest rates rise, a locked loan will usually close at a loss to the lender, but if rates decline many borrowers will start the process over again with a new lender in order to get a lower rate. Losses to the lender from rising rates, therefore, are not offset by gains from falling rates. For this reason, lenders always charge for a lock, and the longer the lock period the higher the charge. The charge, however, may not be explicit. A lock-in should be viewed as an insurance policy, with your need for it based on whether or not the insurance premium you pay for the lock is worth the risk.