You've done your research, found the perfect home, and locked in your mortgage rate. But what happens if rates drop the next day? Understanding your options can save you thousands.
What Is a Rate Lock?
A rate lock guarantees your interest rate for a specified period — typically 30 to 60 days. This protects you from rate increases while your loan is being processed.
Float-Down Options
Some lenders offer a "float-down" option, which allows you to take advantage of a lower rate if market rates drop after you've locked. This usually comes with a fee or requires a specific rate drop threshold (e.g., 0.25% or more).
What Are Your Choices?
If rates drop significantly, you may have several options:
- Float-down clause: If your loan includes this, you can request a lower rate, often for a fee.
- Start over: You could let your lock expire and reapply at the lower rate, but this resets the process.
- Negotiate: Ask your lender if they can offer a reduced rate or credit toward closing costs.
The best approach is to discuss rate lock options with your loan officer before locking. Ask about float-down policies so you understand your flexibility.