One early morning I woke and checked my blackberry to see that one of my buyers had emailed me late at night in a panic. She was worried her mortgage lender lied and gave her an adjustable rate mortgage. Earlier that day we had spent time viewing properties and had come back to successfully make an offer on a house they really liked.  As follow up, I emailed my buyers a copy of the offer and their mortgage approval letter. It was this pre-approval letter that caused the confusion. (Banking lingo can be a bit daunting!)

     “What do you mean my rate is floating??” the panic-stricken email read. “I thought I had a fixed rate mortgage! I don’t want my mortgage payments to increase and then I can’t afford the house later down the road!” Immediately I put myself in my buyer’s shoes and could see how frightening that could be to find out the rate isn’t what you had thought. On top of trying to get some sleep, now she was stressing over this at 1 am! 
While rubbing my eyes and pushing my fat cat out of the way, I began to type back an explanation:

     “Floating” is not the same as Adjustable Rate but I can see how the two could be confused; they sound very similar. Typically when you apply for a Pre-Approval or a Pre-Qualification mortgage the lender qualifies you at the current interest rate. Because there is no home or contract (yet) they “float” the rate.  

     The opposite of Float? –  Lock. You won’t lock your rate until you have a bi-lateral contract, which means the seller agrees to sell you the property. Usually a lock is good for 30 to 45 days – the time it takes until you close the mortgage and sign the final paperwork. Then once you sign the final paperwork your rate will be whatever it is that you agreed upon, which nowadays seems to be a fixed for 30 years or so.

     The opposite of Fixed? – Adjustable (sometimes called Variable).   Ahhhh… Here is where my buyer got confused. She confused float with adjustable and thought her rate would adjust monthly or annually with her mortgage. But what she was reading was that it was a fixed rate floating until she finds a property. (Say that 5 times fast).

     So just remember that you have a choice of a fixed or variable (adjustable) rate. Your rate is floating until you find a property and have a bi-lateral contract. At that time, you ask your mortgage lender to lock your rate. 

Now that you’re all brushed up on your mortgage lingo, go in confidence when you apply for your pre-approval.