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Reasons to Float or Lock

I have been asked to comment on what floating is and why one should float or lock.

When one applies for a loan a good loan officer or mortgage planner will ask many questions. How long are you planning on staying in a home? What are the reasons for wanting a home/loan at this time? What is important to you about your current lifestyle? Do you realize how amortization works? Do you know the difference between a 15 year loan and a 30 year loan? Are you financially savvy and would like an interest only loan and how would you use the difference in money to pay down your mortgage? Etc, etc.

Based on your answers, your mortgage planner will suggest a variety of loans to your and why each is advisable or inadvisable. Then will be the question - Would you like to lock your rate today?

Lock Locking in a rate means that for the next 15, 30 , 45, 60, or 90 days you will have the benefit of that particular rate until you find a house, negotiate the contract, fulfill all the requirements that are needed to get the loan and have the house pass all the various tests that are currently available and negotiated on, and get to the Celebration of signing the documents and getting the keys for your new home.

During this time period much can happen. As stated in Should I float? Should I lock? various economic events can take place that will affect interest rates.

Deciding not to lock means that you would rather float and have rates adjust accordingly each day to the events that unfold in the world. Why would one want to float?

Let us look at an example of what various rates do to a loan for a particular mortgage.

We will assume a 1st mortgage of $250,000. (We are not going to worry about LTV, PMI, or a possible 2nd mortgage - those are for another blog)

Interest Rate	Monthly Payment	Difference	Total Paid over life of loan
7.0%	$1663.26		$598,773
6.75%	$1621.50	$41.76	$583,740
6.5%	$1580.17	$41.33	$568,861
6.25%	$1539.29	$40.88	$554,144
6.0%	$1498.88	$40.41	$539,597

The various gradations appear to be minimal. The greater differences lie in the amount paid over the life of the loan. If your loan size is bigger or smaller than you can calculate these differences rather easily.

Posted by Matthew Rosov, Certified Mortgage Planning Specialist on 11/21/2007 10:33 AM

Comments (10)

10 Comments on Reasons to Float or Lock

you would want to float because of many factors

there are people who are conservative by nature and want to know for sure that they are getting that rate no matter what

some would rather wait because the market is due some turbulence and they want it to work in their favor

typically, my clients are floaters... few don't want to try to work the system.

Right now, during the holiday season, we know that there are key indicators that will be released that could spell some bad news. If so, then we know that rates should drop.

If your client is informed and you keep them up on rate fluctuations, then why shouldn't they be allowed to float?

Since when is it our responsibility to nullify all risk whatsoever for them?? especially when lenders could just fall off the planet in mid-escrow and the loan not be there anyway??

11/21/2007 10:38 AM

by Boca Raton Florida & Boynton Beach Florida Mortgage Loans

I agree, David. Keeping the client informed should allow them to float.

In response to the 2nd question - I'm guessing it was rhetorical as there is no way to nullify all risk and it is our responsiblity to offer the best advice we can give them.

11/21/2007 10:41 AM

by Matthew Rosov, Certified Mortgage Planning Specialist (Envision Lending Group)

I didn't mean to imply it isn't our responsibility to give good advice

I think too many clients think that they're blocking all risk with a rate lock which just isn't the case

but if we float with them and then keep them up on how rates are doing daily then we're in good shape

also... I'm hearing a lot of clammor about rate locking due to lenders selling loans directly... they require clients ASK for a rate lock form and fill it out when they want to lock

just another sign of why a Mortgage Broker on your side helps you with your fiducuary needs

11/21/2007 10:51 AM

by Boca Raton Florida & Boynton Beach Florida Mortgage Loans

Excellent points - I did not realize that about some lenders do this. {shakes head} and Congress is getting on the broker's case??

11/21/2007 11:16 AM

by Matthew Rosov, Certified Mortgage Planning Specialist (Envision Lending Group)

I'm surprised by anyone who doesn't understand the importance of your daily recommendations Andrew. Besides, i wanted to stop by and wish you and yours a VERY HAPPY THANKSGIVING!!!

11/21/2007 12:26 PM

by Portland Oregon Real Estate Broker * Jennifer Bukaty * (RE/MAX equity group, inc.)

Thank-you, Jennifer. btw - this is Matthew! ;-D

11/21/2007 12:37 PM

by Matthew Rosov, Certified Mortgage Planning Specialist (Envision Lending Group)

Matthew, Another excellent post and well laid out. Most of my borrowers in this market like to lock at time of application but I have a lot of short contracts. I do a lot of second homes that close in under 30 days. Call me chicken, but frankly I prefer a client that wants to lock... I hate that feeling of EEEEKKKKK rates just went up and I've got a floater out there. Even though they have been advised of the risks, they still whine when they can't get back to that original rate. Someday I will toughen up!

11/21/2007 01:22 PM

by Linda Peters (Franklin American Mortgage Company)

ooops! I knew that!!!! You too!

11/21/2007 04:29 PM

by Portland Oregon Real Estate Broker * Jennifer Bukaty * (RE/MAX equity group, inc.)

I'm glad you wrote this blog...I understood what you were getting at in the blogs but I'm sure many more people had similar questions that you addressed. Yes the payment difference is relatively small but like you said over the life of the loan in can really add up.

11/28/2007 08:10 AM

by Rick Grand--Mortgage Broker Eugene, Oregon

I like the chart you used. I have use something similar. Instead of total paid I use total saved over time. However, my clients tend to float when I have used the chart. Something for me to consider. Thank you for your thought provoking blog.

12/20/2007 09:17 PM

by Jimmy McCall~Clarksville's Mortgage Consultant (Legacy Mortgage Services, Inc. ~ Clarksville, Tennessee)

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