Deciding Between Locking and Floating Mortgage Rates
No matter what kind of home loan you’re considering for a new home or refinance, mortgage rates will be one of the factors you care most about. With a huge impact on how much you pay over the life of a given loan, interest rates may vary based on market factors, your own financial situation, and other important elements as well.
At Primary Residential Mortgage in Fort Myers, as well as our new branch location in Naples, Florida – from which we’re so excited to continue serving the residents of Florida – we walk you through everything there is to know about mortgage interest rates ( mortgage rate ) during your mortgage application. One important question you’ll likely have to answer early on in the process in this area: Do you want to “lock” or “float” your mortgage rate? Let’s look at what each of these terms means, which you should choose depending on your situation, and another additional option that might be available to you.
Lock Vs Float Definitions
When you submit a mortgage application, you’ll be given an initial mortgage rate based on a combination of your own finances (income, credit score, etc.) and the current mortgage market, which fluctuates daily. At this time, you’ll be given the option by your loan officer to “lock” this rate in – that is, to guarantee that this is the rate you receive on the mortgage. Even if rates kick up during the weeks after you lock (but before you close), you’ll be set at that initial rate; on the flip side, if rates drop while you wait to close, you won’t have the ability to capitalize on this.
You will also have the option at this time, however, of “floating” your rate – this means you are waiting for the possibility of a better rate, or don’t want to lock just yet in case closing takes longer than you expected. When floated, the interest rate is subject to change before closing.
Risk Tolerance
Essentially, choosing whether to lock or float generally comes down to your level of risk tolerance. If yours is relatively low, and particularly if you’re offered a rate near the bottom end of the range you had anticipated, it’s completely fine to simply lock in this rate and take it to the bank, knowing you’re all set.
In other cases, you might choose to wait. Maybe you’re a seasoned real estate veteran and your research has indicated a good chance of lowering mortgage rates over the next month or two – if so, float your rate and wait for the better choice. Our loan officers will help explain other important factors that might play a role in your choice.
Float Down Option
Another option that’s something of a hybrid, available in some cases, is called the “float down” rate. It’s basically a lock, only with a one-time option built in that allows you to take advantage if the market significantly drops after you lock in, allowing you to get a lower interest rate. As you might imagine, float downs come with more risk to the lender, and as such they will come with slight upticks in pricing and rates from those lenders who provide them.
PRMI NMLS 3094. PRMI is an Equal Housing Lender. Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. Programs, rates, terms, and conditions are subject to change and are subject to borrower(s) qualification. This is not a commitment to lend. Florida Office of Financial Regulation MLD646. Opinions expressed are solely my own and do not express the views of my employer.