To lock or to float? It depends what we’re talking about, right? If we were discussing your house’s front door, you’d want to lock it rather than let it float, beckoning in strangers. But if we were talking about the ability to fly, you’d have to be crazy not to choose float. Who wants to be locked down to the ground when they have the ability to float around in the clouds? But what about mortgages? Should I lock or float my interest rate? It’s an important decision and unfortunately, there’s not a clear-cut answer. So today, we’re going to look at the information you should consider before you make your decision. So if you’re asking, “should I lock or float my interest rate?”, stay tuned to find out.
Should I Lock or Float My Interest Rate?
As you already know, interest rates change as the market changes. You’ll have this mortgage for many years and unfortunately, we can’t predict the future. So whether you choose to lock or float your mortgage’s interest rate, you’re taking a risk. That’s just the way it goes.
If you lock, you’re committing to the current interest rates, no matter what happens in the future. Of course, this could go either way for you. If the rates rise, you’re safe! You still get the lower rate you were promised and the lender doesn’t get to benefit. However, if the rates drop, you’ll still be paying those promised rates and the lender will benefit from the market’s downward swing.
Many borrowers choose to lock as soon as possible to eliminate the risk of their rates going up. This is a good idea because although they could miss out on a slight improvement to their rates (if the market’s fluctuation makes interest rates go down), they’re comfortable with the rates and know that a small improvement doesn’t mean much in the long run. If your rates are great at the start, it might be a good idea to lock them down right away. Although an improvement could add up over the next 15 or 30 years you have a mortgage, most borrowers don’t keep the same mortgage for that long, so the improvement won’t really matter.
Borrowers who choose to float are optimistic that the rates will improve. They want to be certain that if the rates do get better, they won’t be locked into their original, higher rates. Although they might lose a little bit in the long run, they’re willing to gamble it.
Floating isn’t a good idea for buyers who need a new loan to close on their home purchase. However, if you’re able to refinance, choosing to float can be helpful because you get the benefit of potentially lower rates while also having the option to abandon the mortgage if interest rates rise.
You might still be asking should I lock or float my interest rate?
As you can see, there’s no great answer. It’s all about risk and whether you feel comfortable with your current rate. Although some borrowers are able to renegotiate a rate after they’ve locked it (getting the best of both worlds), this is not common practice and certainly shouldn’t be expected. So as you make your decision, think about what kind of risk level you’re comfortable with. No one knows how interest rates will change in the next 5, 15, even 30 years, so you’re going to be taking a chance either way.
However, most people are better off locking their rate. As long as you feel comfortable and pleased with your original rate, by locking your rate, you won’t have to worry about what the future may hold.
Should I lock or float my interest rate? It’s a gamble either way, but good luck and may the odds be ever in your favor!