Float

Author:  Terri Ewing        Published: August 10, 2008

Float Defined

A mortgage applicant with a floating rate is subject to the up and down movement in interest rates everyday until the float is corrected. It is said the applicant is at “interest rate risk”.

To correct being at float, one must lock the rate. Locking is separate from the application. Just because you sign the application at a certain rate, does not mean you are locked at that rate. As a matter of fact, the opposite is true, the default state of your rate is at float until corrected.

Mortgage rates change every day and sometimes even during the day. If you are comfortable with the rate on the application, then lock it in. If you are buying and don’t have a signed sales contract yet, you may need to float. Just make sure you are keeping track of the changes in the rate while you are negotiating your contract.

The scary thing is you may be at float and not even know it. Unless you get the lock confirmation from the wholesale lender, you don’t know if the loan officer or broker actually locked you. Why wouldn’t they lock you? They want to make more money or maybe make any money at all. It is not uncommon for originators to low ball the rate on the application to make sure you go with them.

The application or Good Faith Estimate does not guarantee the rate. If you request to lock in the low ball rate, one of two things will happen. One, they tell you the low ball rate is locked. But if they actually locked you at that rate, they wouldn’t make any money. So, they float your rate to see if the market will move in their direction. Two, you show up to the closing at the higher rate because the market didn’t move in their direction. Get the lock confirmation or you are floating and if rates go higher, you are stuck.

Author: Terri Ewing