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.
Borrowers may also be eligible for what is known as a “float-down” if they choose to lock. A float-down is basically a one-time pass to break from their locked contract and opt for a float. This enables them to take advantage of a lower rate if a dip in market occurs.
Bring in a Real Estate Consultant
Buying a home? Contact Curtis & Casteel Law Group. Aside from comprehensive escrow and estate planning services, our team also keeps up with the latest interest rate market conditions in the Lynnwood area.With this information we can make a fairly accurate prediction on whether home buyers should lock or float a mortgage.
Edited by Justin Vorhees
Real Estate Planning for Lynnwood Home Buyers
Proudly serving the people of south Snohomish County, north King County, and the Greater Seattle area
