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 days interest rate. Fixed rate locks are typically 30 days but can be extended up to 55 days for a fee. You can lock a Zions long-term Adjustable Rate Mortgage loan for up to 18 months when locked in conjunction with a Zions Bank construction loan. 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 change daily or even sometimes more often. During the application process you have the opportunity to “lock in” at the current rate for a short time, usually 15, 30, 45, or 60 days while your loan is being processed. The benefit is that you know that your rate cannot increase or decrease. The problem is however, if rates do decrease will not befit from the lower rate, and you will be stuck with a higher rate. You may choose not to lock in your interest rate and “float” the rate during the loan process. You the borrower will take all the risk by not locking in your loan from the time of the loan application. If rates drop down to where you are comfortable you may then choose to lock in your rate. You would benefit greatly by not locking in the rate. However, if rates do increase then you are stuck with a much higher rate than anticipated.
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. The benefit to “floating” a rate is if interest rates were
If you are concerned that the 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 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 rate 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”, 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.
