Mortgage loan“Should I lock or float?” This is one the most common questions mortgage lenders get asked on a daily basis. The answer to this question is crucial since this will determine your mortgage rate. In addition, considering you’re not planning on refinancing, this will determine what your monthly payment will be for the life of your loan.

How Floating and Locking Works

When you apply for a mortgage, the mortgage lender will give you two choices — lock your mortgage rate or let it float.

If you decide to lock your rate, you are ensured a specific interest rate. This means if your lender tells you that you may lock a 5% interest rate today, and you’re genuinely fine with it, they’ll lock that rate. This will guarantee that your interest rate will not be raised or reduced even if mortgage rates change for the life your mortgage. But, you also won’t be eligible for reduced rates, presuming that they fall as your mortgage’s closing period draws near.

On the other hand, if you decide you want to float your mortgage rate, you are basically conveying to your mortgage lender that you’re not happy with your rate and would want to wait for something better. This means your interest rate can be changed — whether reduced or increased depending on market conditions — until such time that you lock it. You’re basically taking the risk that your rate can actually increase and you can’t do anything about it but pay up when it does.

So, Should You Lock or Float Your Mortgage Rate?

Ultimately, the right answer will depend on your current goals and your risk tolerance. To start, if you’re purchasing property, will your chances for qualifying be compromised if mortgage rates increased? If you’re looking to refinance, would the current rate save you a sizable amount of money? Conversely, if you are agreeable to the risk of having your rate increased, it can pay off due to reduced costs or rate. If you’re averse on risking it, then better lock that mortgage rate now.

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