When you apply for a home loan, at some point you will be asked if you want to lock or float your mortgage. If you’re a first-time borrower, you’ll probably be puzzled by the question. Because this is actually a complex issue, you should consult with a real estate lawyer.

Locking and Floating a Mortgage Explained

If you decide to “lock” your mortgage, the mortgage rate becomes locked in. This means the rate you will be charged will no longer fluctuate according to the housing market. For the most part, locking a mortgage is considered the safe option. For some homeowners, it also brings peace of mind as they know their rate won’t increase at a later date. In other words, if the rate is 4%, then this is the rate you will pay irrespective of how the market changes before closing.

The other option is “floating” the mortgage; this is the opposite of locking. If you float your mortgage, then the rate might change before you purchase your loan, depending on the state of the interest rate market. Floating a mortgage is a double edged sword because the market isn’t always predictable; rates can go up or down. If the market is struggling, then that is usually good for the borrowers because it means they get to benefit from a lower rate. Of course, if market conditions are good, then the rate goes up. That’s good for the lending institution but not for the borrower. [Read more…]