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What is the difference between 'locking in' an interest rate and 'floating'?
Mortgage rates can change from day to day or even more often. If you are concerned
that interest rates may rise during the time your loan is being processed, you
can 'lock in' the current rate (and loan fees) for a short time, usually 60 days.
The benefit is the security of knowing the interest rate is locked if interest
rates should increase. If you are locked in and rates decrease, you may not necessarily
get the benefit of the decrease in interest rates.
If you choose not to 'lock in' your interest rate during the processing of your
loan, you may 'float', or hold off locking in until you are comfortable about
the rate. The borrower takes the risk of interest rates increasing during the
time from application to the time the rate is locked in. The downside is that
the borrower is subject to the higher interest rates. The benefit to floating
a rate is if interest rates were to decrease, you would have the option of locking
into a lower rate than if you had already locked in the rate.
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