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What is the difference between "locking" and "floating" a rate?

Tuesday, April 19, 2016 - Article by: MEL SMITH--LENDER OF THE MONTH - Meadowbrook Financial Mortgage Bankers - Message

Interest rates can be a complicated subject to fully comprehend. Taking the time to differentiate between "locking" and "floating" a rate could save you time and money.

A rate lock is when a lender guarantees an interest rate for an established period of time, generally between loan application and closing. Throughout this period, usually 15-90 days, you're safeguarded against rate fluctuations. Lenders have to pay to "reserve" your rate, so the lengthier your lock-in period, the higher your cost. Your well-informed mortgage banker can resolve your additional questions about rate locks.

In order to defend themselves against a potential upsurge in interest rates, many borrowers request that their lender lock in the rate they have been quoted for a precise period of time. This time period is usually between 30-60 days. Other borrowers desire to take the risk that rates will drop while the loan is processed and let the rate on their loan "float." The rate can then be locked in at any time until just before your loan closes.

Review the difference between "locking" and "floating" a rate before you choose what is best for you.

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