What is the difference between locking in an interest rate and floating?
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 15, 30 or 60 days. 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.
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 60 days. When you “lock in” to an interest rate, you are guaranteed that rate for that agreed upon length of time. The benefit is security of knowing the rate is fixed if interest rates should increase. 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” 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.
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 (and loan fees) for a short time, usually 60 days. The benefit is the security of knowing the interest rate is locked if interest rates should increase. 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. The benefit to floating a rate is if interest rates were to decrease, you would have the option of locking into a lower rate than if you had already locked in the rate.
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 (and loan fees) for a short time, usually 60 days. The benefit is the security of knowing the interest rate is locked if interest rates should increase. 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’ your intrest rate until you are comfortable with it. 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. The benefit to floating a rate is if interest rates were to decrease, you would have the option of locking into the lower rate.
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 or less. 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.
