When you’re applying for a mortgage, you’ll be having plenty of decisions to make. One of these is extremely vital to the success of your mortgage – should you float or lock your interest rate? Unfortunately, there’s no easy answer to this question.
But knowing what would happen if you float or lock your interest rate could help you decide.
What Happens if Your Lock or Float your Interest Rate
When you lock in your home loan’s interest rate, your lender will carry most of the risk of your mortgage. The reason for this is if rates go up, you’re still guaranteed the reduced interest rate you locked in.
But if rates drop, it’s a win for your lender because you’ll still be paying the rate you locked in for your fixed rate home loan, which you can get from lenders such as Primary Residential Mortgage, Inc.
On the other hand, the possibility of rates going down is the reason some borrowers choose to float their interest rate. But if rates go up and you decide to float your rate, then you’ll have to pay the higher rate.
The thing you need to remember with interest rates is that they’re inherently subject to certain risks, mainly because of market fluctuations. Additionally, no one could accurately predict which direction interest rates would go.
So Should You Lock it in or Let it Float?
To help you make this immensely difficult decision, what you really need to decide on is the amount of risk that you would be willing to take. If you see that interest rates are have been on the lower end for some time, consider locking yours now.
But if you think that they might go even lower, you could consider floating it until you could get a much lower rate.
When you shop around for lenders, don’t forget to ask about their policies for locking or floating interest rates, especially if you’re still unsure of what you want to do. So do your due diligence and make sure you understand the potential consequences of floating and locking.