Locking In the Interest Rate on Your Home Loan

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Now that you have a contract to purchase a property, you need to decide what you want to do regarding the interest rate on your loan. You must decide whether to “lock” the interest rate on your loan or let it “float”. If you lock, the lender will guarantee that you will get the locked interest rate and closing costs regardless of whether rates go up or down. If you let the rate float, the rate you pay may be higher or lower than today‚Äôs rate.

Should you lock or float? This is a personal decision that you will have to make. Here are some factors to consider. First of all, get out of your mind right away that there is any hope of guessing which way interest rates are going to go. The prognosticators are often wrong about the direction of the market, especially in the short term.

Secondly, look at your personal financial situation. If you are right up against your personal limits on monthly payment and cash available to close, you should seriously consider locking the interest rate. On the other hand, if you are not particularly sensitive about these items, you might let the rate float.

Finally, if you decide to let the rate float, we strongly urge you to set an “upset” limit. In other words, tell yourself you will lock if rates ever rise to a certain level.

If you decide to let the rate float, you must check with your lender daily to see what is happening. Rates can go up quickly and you must stay on top of this issue.

When you lock in with the lender, be sure to request a written lock agreement. This lock agreement specifies the interest rate and the time period of time for which the lock is good.

(Does not apply if you are paying cash for your home)