Should I Lock or Float My Mortgage Interest Rate?

The answer to this question largely depends on you.  Just how much of a gambler are you?  Do you like to go to Vegas and bet the house on the single roll of the dice or does putting a dollar into the slot machine make you break out in hives?  The answer to this question could very well tell you whether to lock or float your mortgage interest rate.

Would you bet your interest rate on the roll of the dice?

First what is locking versus floating?

When you float your rate it is subject to market fluctuations.  If rates go down, then yeah for you; your rate will go down and so will your payment.  However, if rates go up then your rate and your payment will also go up.

If you choose to lock in your mortgage rate then you and the lender are agreeing to a specific rate on a specific product for a specific period of time.  The lender is agreeing to guarantee you that rate regardless of whether or not the rates rise and they could charge you a higher interest rate and you agree to close regardless of whether or not the rates fall and you could get a lower interest rate.

Should you gamble on your rate?

Is there a better day or time to lock?

In my experience, locking on Monday versus Friday or in the morning versus the afternoon does not have an impact on your interest rate.  However, the economic calendar could have an impact on your interest rate.  Events like the release of unemployment data or housing starts could potentially impact the market.  Expectations of events like the Presidential election have also been known to impact the market.

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Final advice

My advice to clients has always been this, locking your loan is like timing the stock market.  Everyone wants to buy low and sell high when it comes to stocks.  Everyone wants to lock in their interest rates at the lowest possible moment.  If your crystal ball isn’t spot on for timing stocks or picking winning lottery numbers, it probably won’t work for picking the absolute best moment to lock in your interest rate.  There are a lot of components to buying a home.  Interest rate is only one of them.  Rates tend to move up very, very quickly and tend to move down very, very, very, very slowly.  If you are offered a rate that you like you should lock it in now and worry about getting the lender all of the documents needed for underwriting.  Then start focusing on packing your boxes and the ideal spot for placing the couch in your new home.

Does this make you nervous? If so, lock your mortgage interest rate

16 thoughts on “Should I Lock or Float My Mortgage Interest Rate?”

  1. It can be such a gamble either way. If you don’t lock in the rate then interest can skyrocket and your payments go up. We were paying 17 percent at one stage on our first home many years ago. Ouch! Rates are at an all-time low here in Australia at the moment, so if we were negotiating now, I’d lock it in as they have to go up eventually.

  2. Really, I’m not a whiz at this. Not at all. But I see little value in having a floating rate. Rates now are quite low; if one locks in now and interest rates somehow miraculously go down even further, we can refinance and lock in a lower rate. I realize there are fees involved, but they won’t be NEARLY what a 1% rate hike will be on 6-7 figures.

  3. I tell ya.. mortgage is such a confusing thing.. and you have a great way of explaining things and it’s valuable, the services you provide in helping people to understand.. thank you for that!

  4. We enjoy our trips to a casino but would not take a floating mortgage. We locked in & even refinanced when rates dropped.
    We had to make similar decisions upon retirement. Great to have financial experts to guide you.

  5. Wow, floating sounds scary! (I guess I have a low risk threshold!)
    Great tips… We are locked in til next year with a great rate, so I’m pinning this to refer back to!

  6. Making this kind of decision can drive you crazy. I think it comes down to being comfortable with your level of risk or accepting a fixed rate and having no regrets when rates go down.

  7. Christy,
    Thank you for explaining a complicated subject in a very non-complicated way. We are trying to decide if we want to sell our house and buy another, so this is almost perfect timing :-). Thank you!

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