Unlock Big Savings with a Mortgage Rate Lock Float Down Option

The term mortgage rate lock float down refers to a financing option that locks in the interest rate on a mortgage while offering the flexibility to reduce it if market rates fall during the lock period. A standard rate lock shields the borrower from increasing rates, and with the float down option, you can also capitalize on falling rates.

Key Advantages

• Stabilized Rate Protection: A rate lock provides a secure interest rate during the underwriting period.
• Benefit from Declining Rates: The float down option lets you reduce your rate if the market interest rates decrease within the lock period.
• There is a Fee: You’ll likely pay for this flexibility, varying in cost depending on your chosen lender.
• Proactive Adjustment: Borrowers must monitor rates and contact their lender to take advantage of a rate drop.

How It Works

A mortgage rate lock float down offers both security and flexibility in fluctuating interest rate environments. Here’s how it works:

• Rate Lock: Secure your mortgage rate.
• Monitor Market Rates: If rates decline during the underwriting process, you can opt for the float down to snag the lower rate.
• Contact Your Lender: Request the float down option before closing.
• Timing: Send a request as early as one week into the underwriting phase, adhering to the terms with your lender, usually spanning 30 to 60 days.

Lenders aim to retain your business by offering this flexibility, discouraging you from seeking loans elsewhere. However, be prepared for additional costs – fee structures are lender-specific and might range from a few hundred dollars and up.

Important Considerations

• Responsibility on You: Your lender isn’t obligated to inform you of rate drops; staying informed is up to you.
• Economic Sense: Ensure rate drops justify the fee for opting into the float down. For instance, a minor dip from 5.10% to 5.00% might not cover the float down costs, whereas a significant fall to 4.60% could yield considerable long-term savings.
• Refinancing: Missing out initially might not be a dealbreaker. You can refinance within six months post-closing to capture better rates if notable market shifts occur.

Mortgage Rate Lock Float Down vs. Convertible Adjustable-Rate Mortgage (ARM)

• Rate Lock Float Down: Begins with a fixed rate that you can adjust if rates fall within 30-60 days before closing.
• Convertible ARM: Features a lower initial teaser rate, adjustable after three to 10 years per an index plus a margin.

Convertible ARMs are ideal for capitalizing on falling rates but often entail switching fees to convert to a fixed-rate mortgage, offering nuanced flexibility at initial or mid-term stages.

Example: A Mortgage Rate Lock Float Down in Action

Suppose a borrower eagerly finalizes a mortgage rate lock float down:

• Initial Lock: 4.25% for a 30-year mortgage.
• Fee Paid: For the option to reduce the locked rate.
• Market Drop: Rates dip to 3.80% two weeks into the process.
• Executed Float Down: The borrower opts in, finalizing at 3.80% for the term.

In scenarios where rates subside after securing a rate lock, the float down can dramatically enhance the financing terms of buying your dream home, balancing security with the agility to seize financial opportunities.

Related Terms: interest rate, financial flexibility, mortgage loan, home buying, refinancing

References

1. Consumer Financial Protection Bureau. “What’s a Lock-in or a Rate Lock On a Mortgage?”
2. Rocket Mortgage. “Float-Down Option: Can It Lower Your Mortgage Rate?”

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