Homebuyers

Should I Lock My Mortgage Rate Today or Float My Rate? What Homebuyers Need to Know

You found the home, your offer was accepted, and you’re under contract. Now, your loan officer is asking if you want to lock your mortgage interest rate or float it.

For many buyers, this part of the process can feel overwhelming. Lock in your rate too early could mean you miss out on a better rate if they come down. But if you wait too long, rates could climb before you make it to the closing table. 

“The real question isn’t about which one is better,” said Stephen Moye, a San Diego-based sales manager at New American Funding. "It’s about which risk you are more comfortable taking.“

Figuring out which one best fits your situation depends on where you are in your homebuying journey and how much you value some degree of certainty during what’s probably a really stressful part of buying a home.

What is a mortgage rate lock?

A mortgage rate lock is an agreement with your lender that will keep your mortgage interest rate unchanged for a certain period of time. The idea is that it will stay the same whether even if rates fluctuate.

However, you typically need to be under contract to lock in a rate.

“A rate lock follows the specific property in question,” Moye said. “A lender generally needs a signed purchase contract before locking because we need to know the property, loan amount, and expected closing date.”

Should I lock my mortgage rate today?

The main benefit if you lock in a mortgage rate is the certainty it provides. If rates rise before you close, you are protected. This also helps you to estimate your monthly housing costs as you don’t have to worry your costs will rise due to higher rates.

“If someone has found the home they want and they’re comfortable with the payment, there’s a lot to be said for removing one uncertainty from the process,” Moye said. “Buying a home already comes with enough moving parts.”

The tradeoff is that you may not be able to take advantage of a drop in rates after you lock in the rate.

However, many lenders offer an option where you can lock but still do a mortgage rate floatdown to secure a lower rate if they go down. Make sure to speak to your lender about this before making a decision.

What is a floating mortgage rate?

A floating mortgage rate is when you’re letting the interest rate move with the market until you decide to lock it in. In most cases, lenders allow a floating interest rate up to seven to 10 days before your scheduled closing date. 

Floating your rate can keep your options open until you’re ready to commit. 

When it makes sense to float your interest rate

Floating your interest rate could give you a chance to lock in a lower rate right before closing. It could also mean that rates go up during that time.

“Every day you float your rate, you're accepting the possibility that rates improve and the possibility they don't," Moye said.

Buyers tend to have a window of time before closing to lock in the rate, so floating could make sense if market conditions seem to suggest rates may go down.

This is when speaking with your loan officer is helpful. Getting a professional opinion can help you make a more informed decision. 

If you do decide to float your rate, you may not want to wait too long hoping for more favorable conditions. 

If rates do fall significantly after the purchase, homeowners may be able to refinance their loans into lower rates.

“Homebuyers probably shouldn’t make one of the biggest life decisions they’ll ever make based solely on trying to guess where rates will be next month,” Moye said. "Life doesn’t always wait for the perfect interest rate.”

Stephen Moye NMLS # 268619