What does it mean to "lock in" an interest rate?

When you "lock in" an interest rate, it means that you are committing to a specific interest rate for a loan, typically within a predefined period. This process protects the borrower from fluctuations in interest rates while they prepare to close on a mortgage or loan. Once the interest rate is locked, it cannot be changed, which can be particularly beneficial in a rising interest rate environment.

Locking in the interest rate ensures that the borrower will pay that specific rate for the duration of the lock period, usually lasting from a few weeks to a few months, depending on the lender's policies. This can provide peace of mind, as the borrower will know their monthly payment amounts and can effectively plan their finances accordingly.

The other options do not pertain to the concept of locking in an interest rate at all. Reducing the principal amount relates to the loan's total debt, adjusting the loan term pertains to the repayment duration rather than the rate itself, and securing approval for additional credit is unrelated to the interest rate being set for a specific loan.