Many borrowers are often confused on whether to float or lock their mortgage interest rate. If you’re facing the same dilemma, be sure not to take the decision lightly. This is because whatever you choose will determine the rate you will have to deal with throughout the life of the loan.
Here are the things to consider when making a decision to lock or float an interest rate:
Locking the Rate
Mortgage companies in Phoenix note that market fluctuations may cause the interest rates to increase or decrease. Locking a rate means that you eliminate the risk of higher monthly payments due to a higher rate. This is especially beneficial in case the rates rise, as yours will remain constant. If the rates drop, however, the company or the lender will get all the benefit.
If you don’t feel like taking a risk, it is a good idea to lock the rates. Some go with this path if they come across good rates, not minding that possibility that it may get a little better. Others, meanwhile, don’t want to let go of a good rate, thinking that waiting may cause the rates to spike higher.
Floating the Rate
If you choose the float the rate, a drop will definitely benefit you, but a rise will benefit the lender. Many of those who prefer to float think that the rates may get a little bit better. Many also think that even if the rates rise, the additional expense may not be too much. No one knows for sure, as this may or may not be the case.
This is a risky move if you need a loan to close your home purchase. If you feel taking a risk, you may choose to float the rate, hoping that it will drop. If this goes in your favor, you can save more money over the life of the mortgage.
Apart from these two options, you may also be able to float down your rate. This option can provide you security against a rise in the lock-in period. This choice, however, may not always be the right one, so it is still best to ask a reliable lender to know more about float down policies.