Locking vs. Floating Your Mortgage Refinance Rates

Want the lowest mortgage refinance rates for your next home loan and aren’t sure if you should lock or float? Locking or floating your refinance rates at the wrong time could cost you if you find yourself on the wrong side of the market. Here are several tips to help you decide if you should lock or float mortgage rates to get the best deal on your next home loan.

The First Rule of Locking Mortgage Rates

Don’t panic. Mortgage refinance rates are at the lowest levels seen in sixty years and it’s unlikely they’ll go up anytime soon. The refinance rate you lock (or float) will determine how much your payments will be and in part how good of a deal you’re getting. Fees are a more important indicator of how good a deal you’re getting when mortgage refinancing but I’ll get to that in a moment.

While it’s not the most important discussion you need to have with your lender, when and whether to lock your refinance rates is an important one. Some lenders assume automatically that you’ll want to lock because they don’t want to explain to you why refinance rates went up. For many homeowners locking is a no-brainer, if you’re offered refinance rates of 4.5% and you’re happy with that they’ll lock it for you.

Once you’ve locked a fixed rate mortgage you’ll know what your payment will be for the duration of your home loan.

Wait, don’t mortgage rates change every day? It’s true refinance rates fluctuate on a daily, even hourly basis. So if I float my refinance rate and interest rates go down my payment will be less right? That’s correct; however, if rates go up and you’re floating your payment will go up also.

Either way, locking or floating your mortgage rates is a risk. Is it possible to time the market and get the lowest possible refinance rates? Some brokers will tell you that it is possible, usually when they’re trying to close the deal on you becoming their customer. Truth be told, there are just too many variables to accurately predict which way mortgage rates are going; however, you can make broad assumptions if you’re so inclined.

There is a broad rule of thumb when it comes to mortgage rates: bad economic news generally means lower rates. That’s why refinance rates are so low right now.

There Are More Important Things to Worry About

If you’d rather sleep at night and find a mortgage quote you like, lock the rate and don’t worry about floating. This is why refinance rate shopping is so important. Where should you be focusing your energy instead of trying to time the market?

Sure the refinance rates you lock are important; however, the most important aspect is the fees you pay to get that interest rate. Overpaying at closing because you didn’t pay attention to the loan origination fee or agreed to pay unnecessary discount points make it difficult, even impossible to break even recouping your out-of-pocket expenses. If you never break even on closing costs you’re losing money no matter how well you timed floating your interest rate.

That’s why shopping for refinance rates AND fees that don’t include comparing discount points is more important. What’s the best way to shop from today’s best mortgage lenders? I always recommend starting with community based credit unions as they tend to offer better deals than giant lenders like Bank of America or Wells Fargo. If you’re short on cash you can accept a higher mortgage rate to get your closing costs paid with Yield Spread Premium.

However you pay your mortgage fees it’s important to make sure you’re not overpaying if you want the best deal on your next home loan.