Should You Lock or Float Your Mortgage Rate?Sep 24 2012
By: Nicole Gates
When getting a new home loan, you are faced with a multitude of decisions. But one that could be most crucial to the success of your home loan is whether you should lock or float when it comes to your interest rate. Should you wait to see if you can wait until rates become lower or should you avoid the risk and lock the rate in now?
By locking in your interest rate, you transfer the risk to your lender. That way, if the rate goes up, you’re still guaranteed the lower interest rate that you locked in. However, if rates decrease, your lender will benefit as you’ll be stuck with the higher interest rate.
This is why some homebuyers tend to float, in the hopes that rates will decrease more, helping them save more on their home loan. However, opposite of locking your rate, if rates increase, you may find yourself with a higher interest rate than you intended.
Interest rates are subjected to risk due to certain market fluctuations and nobody is able to predict the exact direction of rates. When deciding whether you should lock or float, it’s a matter of deciding how much risk you’re willing to take on. Some homeowners lock their rate immediately, especially in the current market, since even a decrease won’t make a huge difference to their savings since rates are so low to begin with. Your home loan expert will have a better idea of where rates are heading and should be able to guide you through your decision.
If you had to choose today, what would you do – lock or float?
**For more information about getting the lowest interest rate you can, click here**