What is the difference between "locking in an interest rate" and "floating an interest rate"?

When applying for a mortgage you may be quoted a simple interest rate that is available at that moment. In order to be insured the rate you are quoted is available at your closing time, the lender must lock in the interest rate for a term for as long as they predict it may require to process your loan. The longer it takes to go to closing the higher the interest rate lock in will cost. Typical lock periods are 30-45 days. Alternatively, especially if you think interest rates are trending lower you may choose to allow the interest rate to float and except whatever the prevailing interest is once you are closer to your closing date.

<< FAQs
>> Next