How are interest rates determined?
Interest rates are influenced by shifting economic indicators in your financial market. This type of fluidity means they can change daily, or even hourly. Different lenders have loan packages and underwriting requirements. The interest rate that you see advertised may be different than what you actually qualify for. This might depend on your credit rating, the type of home you are purchasing, whether you are paying points, or the type of loan that you are qualifying for.
What does it mean to “lock” in a rate?
Since interest rates are so fluid, many buyers choose to combat this by locking in a rate when they find a good one. A locked rate is a contractual agreement between the lender and buyer that offers the buyer protection from financial market fluctuations that could affect the range of the interest rate. There are four major components to a rate lock: loan program; interest rate; points; and the length of the lock. If your interest rate range is locked and there are no subsequent changes to your loan, the interest rate range on your application generally remains the same. However, if changes are made to your loan, your final interest rate at closing may be different.
What does it mean if your rate is “floating?”
If your interest rate is floating, it means it’s not locked. Instead, it’s fluctuating with the up-and-down movements of the market. The benefit of this is if interest rates decrease, you will have the option of locking in at a lower rate. But if the rates rise, you will lose access to the lower rates. Talk with your lender to decide what is best for you.