Mortgage Rate Lock Float Down

Mortgage Rate Lock Float Down

Key takeaways
* A rate lock float down lets you lock a mortgage rate while preserving the option to reduce it if market rates fall during the lock period.
* It protects you from rising rates but requires you to actively request the lower rate — lenders typically will not notify you.
* The float-down option usually carries a fee; whether it pays off depends on how much rates decline and the fee amount.

What it is

A mortgage rate lock secures an interest rate for a set period while your loan is processed. A float down adds the right (but not the obligation) to reset that locked rate to a lower prevailing rate if interest rates drop before closing.

How it works

• You and the lender agree to a rate lock for a defined window (commonly 30–60 days).
• For a fee, the float-down option allows you to move to a lower rate if market rates fall during that window.
• To use it, you must notify the lender or broker; lenders generally do not alert borrowers automatically.
• If exercised, the lower rate becomes your mortgage’s fixed rate at closing.

Costs

• Fees vary by lender. Some charge a flat amount (a few hundred dollars); others charge a percentage of the loan (typically around 0.5%–1%).
• Rate locks with a float-down option are usually more expensive than straight rate locks because of the added flexibility.

When it makes sense

Consider a float down if:
* Rates are volatile and you expect possible meaningful declines before closing.
* A projected rate drop would save more in interest over time than the float-down fee.

It may not make sense if the expected rate drop is marginal (for example, a few basis points) that won’t cover the fee. If you miss a float down and rates later fall substantially, refinancing after closing is an alternative (many lenders allow refinancing after several months).

Special considerations

• You must monitor rates and initiate the float down — do not rely on the lender to notify you.
• Terms vary: some lenders limit float-downs to a single exercise or attach other conditions. Always confirm details before paying the fee.
• Compare the expected long-term interest savings versus the float-down cost before deciding.

Float down vs. convertible ARM

• Float down: starts with a locked fixed rate, with a short-window option to move to a lower fixed rate before closing.
• Convertible ARM: begins as an adjustable-rate mortgage (often with a lower initial rate) and can be converted to a fixed rate later, usually with conditions and fees. ARMs adjust periodically and carry rate-reset risk over time; float downs only affect the initial lock before closing.

Example

• You lock a 30-year mortgage at 4.25% with a 30‑day lock plus a float-down option (fee paid).
• Two weeks later market rates drop to 3.80%; you notify the lender and exercise the float down.
• The mortgage closes at 3.80%, which becomes your fixed interest rate for the life of the loan.

FAQs

Q: If rates rise, am I protected?
A: Yes — the original lock protects you from increases during the lock period.

Q: Do lenders automatically lower my rate for me?
A: No. You typically must request the float down; lenders usually do not proactively notify borrowers.

Q: Can I float down multiple times?
A: Policies vary. Many lenders limit float downs (often to one exercise) or set other conditions. Confirm with your lender.

Q: Is refinancing an alternative?
A: Yes. If rates fall significantly after closing, refinancing can secure a lower rate, though it involves closing costs.

Bottom line

A rate lock float down gives protection against rising rates while preserving the chance to capture a lower rate before closing. It can be valuable when rates are unstable, but the float-down fee and lender-specific terms determine whether it’s cost-effective. Monitor rates, understand the fee and restrictions, and compare the potential savings against alternatives such as refinancing.