At our firm, we base our recommendations on careful analysis of financial market data. However, it’s important to note that predicting market movements is not an exact science. Despite our best efforts, unexpected fluctuations can occur, making it challenging to anticipate the direction of interest rates accurately.

One crucial factor to consider is time. Typically, the market reacts swiftly to negative news, causing rates to spike higher almost immediately. On the other hand, it often takes much longer for rates to improve, even if lower rates are expected in the future. This asymmetry means that borrowers who choose to float their rate may face the risk of sudden increases before they have a chance to secure a favorable rate.

To put the potential impact into perspective, let’s consider a hypothetical scenario. For a loan amount of $332,000, every 0.125% movement in the interest rate translates to roughly a $28 change in the monthly payment. A sudden 0.500% increase in rates could result in a staggering $112 payment hike within a matter of hours. Conversely, if rates gradually improve by 0.125% over the weeks leading up to closing, borrowers could save an additional $28 per month.

However, the question clients must ask themselves is whether the potential savings outweigh the risks involved. Is saving $28 per month worth the possibility of facing a $112 higher payment? Moreover, in the broader context of their financial situation, will a slightly lower payment significantly impact their ability to repay the mortgage?

Ultimately, the decision boils down to each client’s risk tolerance. For those comfortable with the possibility of a higher payment and seeking to capitalize on potential savings, floating may seem like an attractive option. However, for borrowers who prioritize stability and certainty in their payments, locking in the rate at the time of application is a more prudent choice.

In a market with elevated interest rates that are forecast to move lower in the future, we recommend locking in the rate at the lowest possible cost and exploring options to refinance in the future if rates were to drop further. This approach allows clients to secure a favorable rate at a low APR while mitigating the risks associated with market volatility.

In conclusion, navigating the decision to lock or float an interest rate requires careful consideration of market dynamics, individual financial circumstances, and risk appetite. By understanding the implications of each choice, borrowers can make informed decisions that align with their long-term goals and financial well-being.