What is the difference between locking in an interest rate and floating?
Mortgage rates can change from day to day and can even fluctuate during any given day. If you are concerned that interest rates may rise during your loan processing period, then you can “lock in” the current interest rate (and loan fees) for a short time, usually 60 days. The benefit of “locking in” a rate is the security of knowing the interest rate is locked and if interest rates should increase, your “locked in” rate will not change. However, if you are locked in and rates decrease, you may not necessarily get the benefit of the decrease in interest rates. If you choose not to “lock in” your interest rate during your loan processing period, then you may “float”, or hold off “locking in” until you are comfortable about the rate. You do take the risk of interest rates increasing during the time of your application to the time the rate is locked in. The downside is that you are then subject to the current higher interest rates.
If you are concerned that interest rates may rise during the time your loan is being processed, you can “lock in” the current days interest rate. When you “lock in” an interest rate, you are guaranteed that rate for the agreed upon length of time. The benefit is the security of knowing your interest rate is fixed if interest rates should rise.
Mortgage rates can change from day to day or even more often. If you are concerned that interest rates may rise during the time your loan is being processed, you can ‘lock in’ the current rate for a short time, usually 60 days. The benefit is the security of knowing the interest rate is locked if interest rates should increase. However, if you are locked in and rates decrease, you may not necessarily get the benefit of the decrease in interest rates. If you choose not to ‘lock in’ your interest rate during the processing of your loan, you may ‘float’, or hold off locking in until you are comfortable about the rate. The borrower takes the risk of interest rates increasing during the time from application to the time the rate is locked in. The downside is that the borrower is subject to the higher interest rates.
If you are concerned that interest rates may rise during the time your loan is being processed, you can “lock in” the current rate for a fixed number of days. When you “lock in” to an interest rate, you are guaranteed that rate for the agreed upon length of time. The benefit is the security of knowing the interest rate is fixed if interest rates should increase. However, if you are locked in and rates decrease, you will not get the benefit of the decrease in interest rates. If you choose to “float”, your interest rate will fluctuate with the market and will be subject to both upward and downward trends in the market. The benefit to floating a rate is if interest rates were to decrease you would have the option of locking into a lower rate. Most lenders will allow you to lock in your rate once you have found a property and as late as up to five business days before closing. Rate locks and fees will vary.
If you are concerned that interest rates may rise during the time your loan is being processed, you can “lock in” the current rate for a short time, usually 30, 40 and 60 days for retail loans and 12, 21, 30, 45 and 60 days for wholesale loans. When you “lock in” to an interest rate, you are guaranteed that rate for that agreed upon length of time. The benefit is the security of knowing the interest rate is fixed if interest rates should increase. If you are locked in and rates decrease, you will not usually get the benefit of the decrease in interest rates. If you choose to “float” or defer “locking in” an interest rate, your rate will fluctuate with the market and will be subject to both upward and downward trends in the market. The benefit to floating a rate is if interest rates were to decrease, you would have the option of locking into a lower rate.
