Mortgage rates will fluctuate up and down based on the market. Rates can change daily, so you don't know what your rate will be until you lock it. By locking a rate, your lender is guaranteeing you that rate for a specific amount of time, typically 30-45 days. Once you lock your rate, it doesn’t matter if the market fluctuates. If you locked at 4 percent and rates go up, you still get the 4 percent. The risk is on the lender when you lock a rate. However, if rates go lower, you don’t get the benefits of a lower rate.
If you think rates are going to continue to drop while you are house hunting, you may consider floating instead of locking your rate. In this case, if rates go down you do get that lower rate. But if they go up, your rate goes up. By having your rate float, you are not guaranteed a specific rate. The risk is moved to the borrower when floating a rate.
Another option to consider is a float down option, this is primarily used when building a house. The longer the time frame, the more uncertainty there is with rates. By paying a fee, either up front or added to the rate, a float down option locks your rate. However, if rates go lower by a certain percentage, you get that that lower rate without having to risk if rates go up.
Deciding to lock or float your rate is based on the homebuyer's unique situation and comfort level with rate fluctuation. A GSF Mortgage Loan Advisor can discuss what option might work best for you. Contact an Advisor today.