Finance Roll

Wow that's a loaded question! In fact, it's a question I get every day as a loan officer. First of all, because of the laws and regulations here in Illinois, I'm not allowed to answer that question for any of my borrowers. However, I wanted to share with all of you out there what to consider when you have to make this decision.

Float or Lock

First, what does this mean you might ask? When considering buying or refinancing a home, consumers have the ability to lock their interest rate so that it will not change between today and the time the loan closes. Floating means a borrower will wait to see if interest rates will fall in hopes that they can get a lower interest rate when the loan closes. Both have some risk associated with them, so I'd like to help educate you on what to consider when making this important decision.

End Goal

I think it is more important to keep the end goal in mind. So you should ask yourself, can you afford to make the payment if interest rates were ¼% to ½% higher? For example, if a person wants to buy a home for $300,000 and the current rate is 6.25% assuming they put down 20% ($60,000) their payment would be $1,478 per month. Now let's assume they decided to float the interest rate and rates went up to 6.5%. The new payment would be $1,517 per month or an increase of $39 per month. Now if that increase in payment will significantly hinder your ability to purchase your dream home; what do you think you should do?

Risk Tolerability

Every borrow needs to understand their own ability to deal with fluctuations in the market. Interest rates can and do change daily. If you are more conservative in your investment strategy, then locking today might make more sense for you. However, if you like to "roll the dice" and believe interest rates will drop then you might want to consider floating the interest rate. This brings up the importance of having a loan officer you trust when buying or refinancing your home. I personally maintain a long list of borrowers who would like me to call them to refinance when rates drop below a certain level. When rates drop on any given day and the current rate fits for some of the borrowers on my list I call them up and ask them if they would like to lock in the current rate, so that they can refinance and drop their monthly payment and save potentially thousands of dollars over the life of their loan.

Current Market Conditions

No one knows for certain whether interest rates will increase or decrease in the current market. We see fluctuations daily in the bond market just like the stock market. I would suggest you do your own due diligence, and decide if you want to play the market. Remember, there are only 3 things interest rates can do. Interest rates will go up, go down, or stay the same. If you decide to float, you will really only win in one of those 3 scenarios.

Long Term Locks

If your building a home, there are some great loan programs that have come out recently that help the borrower avoid the need to be concerned if interest rates do drop. The last thing anyone wants to do is to lock in a loan for 12 months and then watch the market and see the interest rates drop a half of point or more. So lenders have taken some risk in the long term market recently. They're the experts right? They should have a better idea of where interest rates will go over the next 12 months, right? One program we offer is a 12 month lock that requires a 1% deposit that is refunded at closing. What's unique about this program is that it allows you to float your interest rate down to the current 15 day lock rates before you close on your new home with absolutely no fees.

So ask yourself again, Should I Float or Lock in my Interest Rate?