Refinance guide rate locks and float-downs on a refinance

What a rate lock and a float-down are — and when they make sense

A rate lock is an agreement between a borrower and a lender that guarantees a specific interest rate on a refinance for a set period (commonly 30, 45, 60, or 90 days). Once you lock, the lender promises the quoted rate as long as loan terms and your qualifications don’t change and the refinance closes within the lock window.

A float-down is an add-on feature some lenders offer that lets you take advantage of a lower market interest rate if rates fall after you lock. It does not guarantee a lower rate automatically; it gives you an option to adjust to a lower published rate under the float-down terms.

When it makes sense: lock when you expect rates to rise or when you need certainty to budget monthly payments and closing costs; consider a float-down if you want protection against upward moves but want the option to capture a drop in rates before closing.

Benefits and drawbacks

Benefits

• Predictability: A lock provides certainty for monthly payments, estimated savings, and breaks down the refinance math for budgeting.
• Protection from spikes: Locks guard against sudden rate increases during underwriting, appraisal, or processing delays.
• Optional flexibility with float-downs: If you buy a float-down, you may capture a lower rate without re-locking or re-negotiating the loan.

Drawbacks

• Opportunity cost: If rates fall after you lock and you don’t have a float-down, you’re stuck at the locked rate.
• Fees and restrictions: Float-downs and longer lock periods often cost more or have conditions (one-time use, minimum drops required).
• Limited time window: Locks expire, and if your refinance is delayed you may have to pay extension fees or accept a new market rate.

Costs and fees to expect

Costs vary by lender and product. Common items to watch for:

• Lock fee: Some lenders charge a fee for the initial lock, especially for longer lock periods. Others include a short free lock (e.g., 30 days) and charge beyond that.
• Float-down fee: A separate charge or an increased rate may be applied to enable float-down rights. Some lenders offer one free float-down; others charge a flat fee or a percentage of the loan.
• Extension fees: If your lock expires before closing, the lender may charge to extend the lock (often $100–$500 or more, depending on the lender and length of extension).
• Buydowns/points: Paying discount points lowers your rate; a float-down might only apply to the base rate and not to a rate reduced by paid points unless specified.

Always ask lenders for a written description of lock, float-down, and extension costs and confirm what happens if your refinance doesn’t close.

Step-by-step process

• Get prequalified and compare offers. Collect Loan Estimates from multiple lenders to compare rates, fees, and lock/float-down options.
• Choose your refinance product and decide how long to lock. Consider the expected closing timeline and current market volatility when picking a lock period.
• Request the lock in writing. Confirm the rate, lock expiration date, and any costs or float-down terms. Make sure the lock covers the exact loan product and points you agreed to.
• Monitor the market. If you bought a float-down, note the window and the minimum drop needed to trigger the option (e.g., 0.25% or 0.375%).
• Exercise the float-down if applicable. Follow the lender’s process and deadlines (some require you to request the float-down before certain loan milestones).
• Close on time. Ensure documentation, appraisal, title work, and funding are coordinated so the loan closes inside the lock window or you have a plan for extensions/fees.

Common pitfalls to avoid

• Assuming float-downs are automatic: Many float-downs require you to request them within a specific time and may have limits (only one use, applies only to certain rate drops).
• Not locking long enough: If underwriting or appraisal takes longer than expected, a short lock can cost you extension fees or a higher rate in the new market.
• Overlooking fine print: Some float-downs apply only to the lender’s par rate, exclude certain loan programs, or don’t combine with other concessions.
• Failing to account for points: If you paid points to lower your locked rate, a float-down might lower the base rate but not reimburse the cost of points you already paid.
• Assuming locks cover all changes: Locks typically require that your credit, assets, and loan program remain the same. Any significant change can void the lock.

Short FAQ

How long should I lock my rate for a refinance?

Pick a lock long enough to cover expected processing and closing — commonly 30–60 days for straightforward refinances and 60–90+ days if you anticipate delays. Balance the cost of a longer lock against the risk of rate movement.

Can I lock my rate before my refinance is fully approved?

Yes. Many borrowers lock once they accept a Loan Estimate and the lender begins processing. Understand that the lock assumes no material changes in your financial profile or loan program.

Is a float-down worth the cost?

It depends on your tolerance for risk and market expectations. If rates are volatile and you want protection against a rise while preserving the upside of a fall, a float-down can make sense. If rates are stable or you can re-shop at no penalty, it may not be cost-effective.

What happens if my refinance doesn’t close before the lock expires?

Either you pay an extension fee, re-lock at current market rates, or renegotiate terms. To avoid surprises, clarify extension policies and fees before locking.

In short, a rate lock gives you certainty; a float-down offers conditional protection and upside. Read the lender’s lock and float-down terms carefully, factor potential fees into your refinance math, and coordinate timing with your lender to minimize the chance of expirations and costly extensions.

META: rate lock, float-down, refinance, mortgage, homeowner guidance