Lock or Float? How to Decide on Your Mortgage Rate
Mortgage rates move daily, here’s how to know if you should lock in a rate now or let it float until closing.
When buying a home, securing the lowest interest rate available means you won’t have to pay more than necessary on top of your principal balance. But interest rates change constantly — sometimes multiple times a day.
These changes could mean the rate you secure today may not be the lowest rate on the market before you close on your new home.
Before signing any paperwork with a lender, whether you're getting preapproved or finalizing your loan, it's important to understand how interest rates work. Knowing the difference between locking in an interest rate and letting it float can help you make a more informed decision and avoid paying more than necessary over the life of your mortgage.
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What does it mean to lock in an interest rate?
Mortgage interest rates can change often, so what you see today isn’t necessarily what you will pay by the time you close on your home.
When applying for a home loan preapproval, some lenders allow you to either lock in your interest rate or let it float.
Locking in an interest rate means securing a rate from the time you complete your preapproval application through closing, as long as you meet certain conditions from your mortgage lender. These might include closing within a set time frame, such as 30 or 60 days, and ensuring the home's appraised value remains consistent.
Pros and cons of locking in an interest rate
Locking in your rate can offer stability, but it may also limit your flexibility if market conditions change. Here are some key advantages and potential drawbacks to consider.
Pros
- Get the lowest interest rate available right now.
- Some lenders lock your rate for free.
- You can estimate your monthly payments to find home listings in your price range.
Cons
- There’s a chance interest rates could drop before you close on your home and you don’t get the lowest interest rate available anymore.
- Terms could change if you don’t meet borrower obligations, like closing before the deadline or your credit score changes.
- Unable to buy points to lower the interest rate if it is locked.
Curious about today's rates? Explore and compare some of today's best mortgage options with the tool below, powered by Bankrate:
What is a floating interest rate?
Rather than locking in an interest rate, you can let it float. Floating an interest rate means you get the lowest rate available at closing time, even if it’s different from what you saw during the preapproval process.
Pros
- Your estimated interest rate could drop by the time closing comes around.
- Allows you to buy mortgage points to lower the rate - pay to reduce the interest rate through discount points in exchange for upfront lump-sum cash.
- You aren’t tied to the rate lock deadline when home shopping.
Cons
- You could end up with a higher interest rate than your original quote.
- A higher interest rate at closing means you could pay more per month and over the life of your loan.
- Higher monthly expenses could cut into other financial necessities, including other bills or emergency savings.
When should you lock in an interest rate vs. letting it float?
Locking in an interest rate is a safe and secure way of keeping your rate at an expected level when buying a home. But there might be some instances where you decide to get a floating interest rate instead.
You should lock in an interest rate if:
- You’ve been following mortgage rates and they’ve been trending upward.
- You have the lowest interest rate available.
- You expect to close on a home within the set time frame.
- You don’t plan on making any big purchases before buying a home that would change the rate.
You should float an interest rate if:
- The trend shows mortgage rates are dropping and you expect to get a lower rate by the time closing comes around.
- You aren’t sure if you’ll close on a home within the set time frame.
- Your credit score might change, impacting the interest rate you got during the preapproval process.
- You could get a lower interest rate by buying mortgage points.
When you’re unsure if a floating interest rate is right for you
If you’re uncertain whether to float your interest rate, talk to your lender or mortgage broker about your options. They can help you evaluate your financial goals and determine what makes the most sense for your situation.
If a floating rate could benefit you, they should explain why. If a rate lock is the better choice, make sure you understand the reasoning. In some cases you might qualify for a float-down option, which lets you take advantage of a lower rate if it drops before closing.
If you’re unsure about the deal you’re getting or want to explore other options, don’t hesitate to consult with other mortgage professionals. Buying a home is one of the biggest financial decisions you’ll make and it can be stressful. Surround yourself with a team that supports your goals.
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