Should you lock the interest rate or let it float?

Everyone has asked that question, and there are as many answers on one side as there are on the other. Some say float until the very last minute, while others advise you to lock and forget about it. Here's what happens when you do either one after receiving an accepted offer.

When you choose to "float" an interest rate, you're actively deciding not to "lock," or guarantee current rates through your escrow period, usually 30 days. Locks cost a little extra, and typically come in the 15, 30, 45 and 60-day variety. Many lenders offer longer locks while some don't. For each additional 30 days you want to guarantee your interest rate, expect to increase your discount point or origination fee by .25. If you lock in for 15 days or less, there is no additional fee, while the difference between 15 and 30 days is also about 1/8 of a point. On a $100,000 loan, 1/8 point is equal to $125.

So here's the rub. If you float your rate until you're 15 days away from closing you can then lock without paying any extra. An extra bonus might be that rates had actually dropped during your float period and you "floated" to the lower rate, locking 15 days away from closing at no charge. On the other, more painful hand, rates could have increased during your float period and you're going to have to lock in your rate … lenders need enough time to draw your closing papers, review conditions and fund your loan, often times a minimum of 7 days. If rates go up while you floated, you lost. There are plenty of buyers who can attest to how excruciatingly long it takes for rates to inch downwards but how blazingly fast rates can shoot up. Greenspan can sneeze and rates will move up .25 percent.

If you elected to lock in your rate right away for 30 days or so, then you can pretty much put that part of your home loan process away and forget about it. You're locked. If rates go up, you're protected. If rates go down, well, rates go down, and you still get your locked rate. Don't expect the lender to lower your rate if rates go down during your lock period. At the same time, don't expect your lender to call you if rates go up during your lock period and ask if it's okay if you took the new, higher rates.

There is one exception to this general lock rule and that has to do with "float down" features offered by some lenders on some loan products. With these loans, if you lock for say, 30 days and rates move down before your lock expires, the lender will allow for a one-time float down to the new, lower rates. Most often for a small fee. Usually about a hundred bucks, but some lenders charge nothing, some charge a little more.

So, do you lock or not lock? In my experience, it's more of a personality issue. Some like to take more risk, some don't. Me? I lock. My brother? He floats. He also has more gray hair than I do and is going bald.

Here's my advice: Assume you make a decision, then also assume you made wrong the wrong decision. Now, which way would you rather be wrong, you locked in at a market rate and the rate moved down a little? Or you didn't lock at market rates and you watched rates zoom through the roof? Hmmm? I thought so. Lock. Sleep at night.

Published: January 17, 2005

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.