Mortgage Rates Lock or Float: Strategies and Considerations

If you're planning to take out a mortgage, you'll likely come across the terms "lock" and "float" when discussing interest rates. A mortgage rate lock allows you to secure a fixed interest rate for a set period of time.

The length of a rate lock can vary, but it's typically between 15 to 60 days. This means you'll have a guaranteed interest rate for that period, giving you peace of mind during the mortgage application process.

However, locking in a rate too early can be a costly mistake. If interest rates drop after you've locked in, you'll be stuck with a higher rate than you could have gotten later on.

To avoid this, it's essential to understand the pros and cons of rate locks and floats, which we'll explore in the following sections.

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A rate lock is an agreement with your lender that your interest rate will be reserved for a particular amount of time, protecting you against rising market rates.

Just because you've received a quote doesn't mean you've locked your rate - locking your rate means you're entering an agreement with your lender.

Your interest rate impacts your monthly payment and lifetime loan amount, so locking your rate is crucial.

Interest rates change frequently, often daily or even multiple times a day, so locking your rate can save you thousands of dollars in interest paid over the life of your loan.

For example, locking in a 7.14 percent 30-year rate for a $300,000 loan can save you $26,442 in interest compared to not locking your rate and rates rising to 7.5 percent.

You can use Bankrate's mortgage calculators to get a sense of what you'd pay based on your rate lock.

Most people lock their rate at approval, but you can also lock your rate if you're nearing the finish line and want to make sure no other blips derail your home purchase.

In fact, locking your rate can provide peace of mind as you search for that perfect home, and it can be a great idea if you've run the numbers and know you're at the top of your budget when it comes to your monthly payment.

You have to lock your rate at least seven days before your loan closes to avoid any delays.

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Locking in your mortgage rate is a crucial decision that can save you thousands of dollars in interest payments. A rate lock guarantees your interest rate for a specified period, usually 30, 45, or 60 days.

A rate quote is not a rate lock, and you shouldn't assume you've locked in your rate just because you've received a quote. Locking your rate means you're entering an agreement with your lender that your interest rate will be reserved for a particular amount of time.

If you lock in a 7.14 percent 30-year rate for a $300,000 loan, you'd pay $428,710 in total interest, but if rates rise to 7.5 percent by the time you close, you'd pay $455,152 in interest – a difference of $26,442.

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Locking in your mortgage rate can provide predictability and peace of mind, especially when searching for a home that really stretches your budget. You can lock your rate at approval, so there are no surprises later.

Most people lock their rate at approval, as it brings about predictability. However, you can also lock your rate if you know you're at the top of your budget when it comes to your monthly payment, making it a smart move.

Locking in your rate can be a great idea if you're nearing the finish line, with less than 30 days from closing on your home. You should lock your rate at least seven days before your loan closes to avoid any delays.

If the market is stable or even declining, it can make sense to float and see what the market does. However, this is always a risk, and your loan officer can help determine whether floating is the right decision for you.

Most lenders won't lock your rate for less than 30 days unless you're ready to close. They often offer the same rate for a 15-day and 45-day period, so it's worth asking about the rates for several lock periods.

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To lock in a mortgage rate, you'll need to apply for a loan and get pre-approved for a specific rate. This typically takes a few days to a week.

You can shop around for lenders and compare rates to find the best deal. According to our research, the average rate difference between lenders can be as much as 0.5% to 1%.

Locking in a rate usually involves paying a fee, which can range from $150 to $300, depending on the lender and the type of loan. This fee is non-refundable if you decide to cancel the loan.

You can lock in a rate for a fixed period, typically 15 to 60 days, to give you time to finalize your mortgage application. If you need more time, you can usually extend the lock period for an additional fee.

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Discounts can be a great way to save on your mortgage rate. Some lenders offer a "float down" option, which allows you to take advantage of a lower rate if the market drops after you've locked in.

This option can be expensive, so it's essential to weigh the immediate cost against the long-term savings.

Discount points are another consideration. By purchasing discount points, you can pay a percentage of the loan amount to lower your rate.

The cost and percentage decrease vary depending on the market and lender.

Additional reading: Mortgage Rates Cut Impact Cost

A rate lock is an agreement with your lender that your interest rate will be reserved for a particular amount of time.

Locking your rate protects you against the risk of rising market rates during the weeks before your closing, which can result in significant changes in the interest paid over the life of your loan.

Mortgage rate lock fees vary by lender, but it's essential to read the fine print to understand the terms, such as how much rates must fall for you to exercise your option.

For example, some lenders may say rates must drop 0.25 – 1% for you to float the rate down.

Every lender charges a fee to float the rate down, so it's essential to know what you're getting into.

Make sure you can afford to cover the fee at the closing, as you don't have to pay it upfront.

The fee for a rate lock extension is typically a percentage of your loan amount, so factor that into your budget.

The longer the extension, the more you'll pay, so it's usually more efficient to pay for a longer rate lock upfront and give yourself a cushion in case you need more time.

You can always ask your lender about their fee structure and what to expect at closing.

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The expiration date of your mortgage rate lock doesn't change, no matter when you float the rate down within the lock period. For example, if you have a 30-day lock and there are 10 days left when you float the rate down, you still have 10 days to close the loan without the rate expiring.

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If your closing date is extended, the lock period won't be extended either. Many lenders make it clear that they can't extend the lock period for a float down, even if your closing date changes.

If you float the rate down, you'll still have the same amount of time to close the loan as you did initially. So, if you had 30 days to close the loan when you locked in the rate, you'll still have 30 days after floating the rate down.

Intriguing read: Mortgage Rates Have Ticked Back down to below 7

Lenders often have specific rules for exercising your option to float down your mortgage rate.

The rates must drop to a certain amount for you to use this option. For example, a lender might say rates must drop 0.25 – 1%.

It varies by lender, so be sure to check your contract. If a lender says rates must drop 0.5% to use it, you're locked in at 4% until rates hit 3.5%.

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If you're not sold on floating your mortgage rate, there are alternatives to consider. Refinancing the mortgage in the future when rates drop can be a viable option.

You can also take an adjustable-rate mortgage and take advantage of lower rates when they fall. Just be aware that this option comes with some risk.

Paying a higher fee for a longer rate lock can be worth it in some cases, especially for construction loans where interest rates are rising.

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An option in the context of mortgage rates refers to a specific agreement that allows borrowers to take advantage of lower interest rates.

This agreement is known as a float-down option, which can be used to hedge against higher rates while allowing you to lock in a rate.

A float-down option gives borrowers the opportunity to take advantage of lower interest rates if you’ve already locked your mortgage rate.

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Floating your mortgage rate means you're choosing not to lock in the current interest rate, hoping it will decrease instead. This option is often chosen by borrowers who want to wait for a potential rate drop.

You may also opt to float your rate if you have a long closing planned and don't want to pay an extended lock period fee. Some lenders offer 30-day locks, while others offer 45 days or more.

By floating your rate, you're assuming more risk, as the interest rate has the potential to fluctuate unless it's locked. This can be a deliberate choice or an unintended consequence.

A float down option can provide the opportunity for a borrower to lower their mortgage costs if rates fall.

Locking in your rate can bring about predictability, which is almost always welcome in a home buying process that can feel overwhelming and full of surprises at times.

Most people lock their rate at approval, so there are no surprises later. Knowing that your rate won't go up can provide peace of mind as you search for that perfect home.

Locking in your rate can be a great idea if you've run the numbers and know you're at the top of your budget when it comes to your monthly payment. The risk associated with an increase may outweigh the chance that rates fall, and if they do fall you may be able to exercise a one-time float-down option.

You can also consider locking your rate if you know you're less than 30 days from closing on your home. In these instances, you're nearing the finish line and want to make sure no other blips derail your home purchase.

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If you don't want to pay the extra fee for a float-down, you have other options to obtain a better interest rate.

You can choose to refinance the mortgage in the future if interest rates drop, which can be a good option if you're willing to go through the refinancing process again.

Refinancing can be a hassle, but it can also save you money in the long run.

For example, you can take an adjustable-rate mortgage and take advantage of lower rates when they fall, although this does come with some risk.

Alternatively, you can skip the float-down and take a straight lock, then consider refinancing in the future.

Here are some options to consider:

You might be wondering what alternatives exist to floating mortgage rates. A fixed-rate mortgage is one option, where the rate is locked in for the entire term of the mortgage.

A variable-rate mortgage is another alternative, which allows the mortgage rate to fluctuate with the prime lending rate of the institution. This type of mortgage can be a good option for those who don't mind the risk of rising rates.

Not all rate lock agreements include a float-down option, so it's essential to review your agreement carefully. Some lenders charge a fee for using a float-down option, which is usually a percentage of your loan amount.

If you're looking for a mortgage product that offers more flexibility, you might consider a mortgage rate lock float down. This option allows you to take advantage of declining mortgage rates without exposing yourself to higher rates if they arise.

Additional reading: Why Aren't Mortgage Rates Going down

Paying a fee to lower your mortgage rate, also known as floating down, can cost between 0.5 – 1% of the loan amount.

If you're buying a home for temporary reasons, it may not make sense to float down the rate, as you won't be in the home long enough to enjoy the savings after paying the fee.

The break-even point is key to determining whether floating down the rate makes sense. Calculate how much the rate will save you per month.

You'll need to determine how many months you must be in the home with those savings to cover the float-down cost, which can be $1,000 – $2,000 for a $200,000 loan.

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Locking in a mortgage rate can be beneficial if rates rise before closing, as seen in the example where a 7.14 percent 30-year rate saved $26,442 in interest compared to a 7.5 percent rate.

However, it's essential to consider the fees associated with locking your rate, which can vary.

The difference in interest paid between a locked and floated rate can be substantial, as demonstrated by the $26,442 difference in the example.

Your risk tolerance is a crucial factor in deciding whether to float or lock your mortgage rate. If you're good at keeping an eye on market trends, you might be more comfortable with floating, but no one really knows for certain what the rates will do.

Floating can be a risk if you predict a rate decrease, but locking is the better option if uncertainty keeps you up at night. You must be willing to accept the risk if you choose to float, so it's essential to consider your comfort level with uncertainty.

The direction of rates is determined by a complex balancing act between the economy and rates. This means that rates can go in any direction, making it difficult to predict what will happen.

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The lender provides a baseline for how much rates must fall to qualify for a float down. This baseline is usually around 0.25-0.5% better than the locked rate.

If you're offered an interest rate of 4.25%, and your lender requires a 0.5% difference for a float down, then the current rates would need to fall to 3.75% for an individual to take advantage of the option.

On a similar theme: 25 Year Mortgage Rates

Let's take a look at some mortgage rate lock examples and scenarios to help you make a decision that's right for you.

If you lock in a mortgage rate, you can avoid paying a significant amount of money in interest over the life of the loan. For example, if you lock in a 7.14 percent 30-year rate for a $300,000 loan, you'd pay $428,710 in total interest.

A mortgage rate lock can pay off, especially if rates rise before you close on your loan. Consider this: if you don't lock your rate and rates rise to 7.5 percent, you'd pay $455,152 in interest - a difference of $26,442.

Some mortgage agreements come with a float down option, which allows you to lock in a lower rate if rates fall before closing. For instance, if you have a mortgage with a locked rate of 4.5% and a float down option, you can lock in a new lower rate if the mortgage rate falls to or below 4.25%.

Let's look at the numbers: if you have a $5,000,000 loan at 4.5%, you'd pay $9,120,334 over the life of the loan. But if you can lock in a 4.25% rate, you'd pay $8,854,920 - a difference of $265,414.

It's a good idea to lock your rate if you're near the top of your budget or if you're less than 30 days from closing on your home. This can provide peace of mind and ensure that you can qualify for the home you want.

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A rate lock certificate is a crucial document that outlines the terms of your rate lock. It's essentially a promise from your lender that your interest rate will remain the same for a specified period.

Your rate lock expiration date will remain the same even if you float the rate down within the lock period. For example, if you have a 30-day lock and there are 10 days left when you float the rate down, you still have 10 days to close the loan without the rate expiring.

If your rate lock expires, it's not the end of the world. Some lenders will grant an extension for a fee, while others will not, in which case your rate will revert to the current interest rate.

The lender can void a rate lock if certain items on your credit report or mortgage application change between the time of your agreement and final underwriting. This is a risk you'll want to consider when deciding whether to lock in your rate.

Most lenders won't lock your rate for less than 30 days unless you're ready to close, and often offer the same rate for a 15-day and 45-day period. This means you'll want to ask about the rates for several lock periods when shopping around.

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A rate lock is an agreement between you and your lender that your interest rate will be reserved for a particular amount of time.

Most lenders don't charge a separate fee for rate locks within a certain period, but if they do, it's likely to be a quarter to half a percent of your loan amount.

If you need to extend the rate lock period beyond the standard 30 or 60 days, you can expect to pay an extra fee for it.

The cost of a rate lock can add up, but it's worth considering the potential savings if interest rates rise during the weeks before your closing.

For example, if you don't lock your rate and rates rise to 7.5 percent by the time you close, you could pay an additional $26,442 in interest over the life of the loan.

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