What does it mean to "float a loan"?

Choosing to "float a loan" refers to the practice of keeping the interest rate on a loan open until the borrower decides to lock it in at a certain rate. This option allows borrowers flexibility in timing their loan closing with respect to market interest rates. If the market rates go down while the loan is floating, the borrower can benefit from a potentially lower rate when they choose to lock in. Conversely, if rates rise, the borrower would lock in at a higher interest rate. This strategy is often employed by borrowers who believe that interest rates may drop in the future or who are not in immediate need of finalizing their interest rate.

This concept is crucial for understanding loan mechanics and how market fluctuations can influence personal finance decisions regarding home purchasing or refinancing.