To Lock or Not to Lock

To Lock or Not to Lock

At this point, you will need to decide if you want to lock in an interest rate or float the rate until later. If you lock the rate, it means that the lender is reserving an interest rate for you. The rate will have a certain amount of points associated with it. So, if rates go up while your loan is in process, you are protected and you still get the lower locked-in interest rate. However, if the rates go down, you do not get the benefit of the lower rate; you still get the rate at which you originally locked in.
If you decide you don’t want to lock in and want to wait until it’s closer to the time of loan closing, then you are “floating” the interest rate. You may choose to float the rate if you feel that the interest rates are going to drop lower than the current rate. Keep in mind that, if the rates happen to increase during this time, you could be stuck with a higher rate.

Whichever you decide, it is important that you get it in writing from the lender. If you decided to lock, the written document should state at what interest rate and points you locked in and when this rate lock expires. This is often referred to as a “lock-in agreement.” You will want to make sure the loan closes before the rate expires. Otherwise, you will lose this guaranteed rate and could be subject to higher interest rates. For more information, see the U.S. Federal Reserve Board’s publication A Consumer’s Guide to Mortgage Lock-Ins.

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