What is a “floating” rate?
You may have the option to let the rate “float,” getting the final rate and fees set nearer the settlement date. If you believe rates are declining and are willing to run the risk that interest rates could rise during the processing of your loan, you may select this alternative. Before you take a floating rate, make sure that the rise in interest rates will not create a problem for you because you have insufficient income to cover the higher mortgage payments. In either case, make sure you understand exactly the terms of the lock-in agreement.
Interest rates and exchange rates are an everyday part of the world’s economic life. Any time that currency is borrowed, loaned, or exchanged for another type of currency, these rates come into play. These rates can be fixed at a certain value, or can be free to change with market fluctuations and other changing conditions. A rate that changes with market conditions on a periodic basis is called a floating rate. The three contexts in which we see floating rates most often are in mortgage interest rates, currency exchange rates, and bond yields. When an individual takes a mortgage loan on a property, he needs to decide whether a fixed rate or a floating rate — also called an adjustable rate — is the most desirable. If interest rates are comparatively high at the time of the loan, the individual would most likely benefit from a floating rate, because as interest rates fell to historically normal or low levels, the interest rate on the loan would decrease. This would then result in the
