Refinance guide rate locks and float-downs on a refinance

Rate Locks and Float-Downs on a Refinance: What Homeowners Need to Know

When you refinance a mortgage, the interest rate you get can make a large difference in monthly payments and the long‑term cost of the loan. Two tools lenders use to manage rate risk during the refinance process are the rate lock and the float‑down. This article explains what they are, when to use them, their pros and cons, costs and fees involved, a step‑by‑step process for using them, common pitfalls, and quick FAQs.

What a Rate Lock Is — and When It Makes Sense

A rate lock is a lender’s written promise to hold a specific interest rate (and often the associated points) for a fixed period while your refinance moves toward closing. Lock periods commonly range from 15 to 90 days, with options for longer locks on some loans.

Locking makes sense when you want certainty about the interest rate and monthly payment while the lender completes underwriting, appraisal, title work, and other closing tasks. It’s particularly useful if interest rates are rising or you expect rates to climb before closing.

What a Float-Down Is — and When It Helps

A float‑down provision lets you reduce your locked rate if market rates fall during the lock period. It’s optional and offered differently by each lender: some allow one float‑down to a specified date (often up to a week before closing), others require paying a fee or buying a discount point to get the feature.

Float‑downs are helpful when you lock during a period of uncertain or volatile rates and want protection against increases but also want the option to take advantage of any drop in rates.

Benefits and Drawbacks

• Benefits of rate locks: Certainty on monthly payments, protection from rising rates, easier budgeting, and predictable closing costs.
• Drawbacks of rate locks: You forgo potential savings if rates fall (unless you have a float‑down), and locks can expire if closing is delayed, which can mean paying extension fees or losing the rate.
• Benefits of float‑downs: Gives downside protection plus upside capture if rates fall, offering both security and flexibility.
• Drawbacks of float‑downs: May carry a fee or higher initial rate, often limited to one use or to a specific window, and terms vary widely by lender.

Costs and Fees

Rate locks themselves are often free, but not always. Fees you may encounter include:

• Lock fees: Some lenders charge a small fee for longer lock periods (e.g., beyond 30–45 days).
• Float‑down fees: A flat fee or the cost of buying points may be required to enable a float‑down.
• Extension fees: If your closing is delayed past the lock expiration, expect daily or flat extension charges or the need to re‑lock at prevailing rates.
• Hidden cost: A lender may offer a “rate with float‑down” at a slightly higher rate than a basic lock — that spread is the implicit cost of flexibility.

Always ask for a written rate lock agreement that spells out fees, the lock period, the float‑down rules (if included), and the effective date.

Step‑by‑Step Process for Using a Rate Lock and Float‑Down on a Refinance

1. Compare lenders: Request quotes and ask each lender for lock policies, fees, and float‑down terms in writing.
2. Apply and gather documentation: Submit your refinance application with income, assets, credit, and home equity information. Lenders typically require a complete file before locking.
3. Choose lock length: Pick a lock period that matches your expected timeline to closing. Shorter locks are usually cheaper but riskier if delays occur.
4. Decide on float‑down: If offered, weigh the cost against the chance rates will drop. If you expect rate volatility, a float‑down can be worth the extra cost.
5. Lock the rate: Sign the rate lock agreement. Confirm the rate, points, lock expiration date, and float‑down conditions in writing.
6. Monitor rates and milestones: Keep in touch with your lender and track market rates. Know the float‑down deadline and any documentation deadlines that could affect the lock.
7. Exercise float‑down (if applicable): If rates move down and the float‑down window is open, request the adjustment per the lender’s process—usually in writing before the float‑down cut‑off date.
8. Close the loan: Provided underwriting, appraisal, and title are complete and any conditions are met, you’ll close at the locked or adjusted rate.

Common Pitfalls to Avoid

• Locking too early: When you lock before your file is complete, changes to loan terms (loan type, down payment, cash‑out amount) can void the lock or change the rate.
• Ignoring the lock expiration: If closing slips past the expiration date you may pay extension fees or re‑lock at a higher rate.
• Assuming float‑down is automatic: Many lenders require you to request a float‑down by a deadline—don’t assume you’ll be automatically adjusted.
• Not reading the fine print: Float‑downs often limit how much the rate can reduce, may exclude certain fee structures, or only allow a single use.
• Focusing only on rate: Consider total refinance cost (closing costs, appraisal, points) and breakeven time when deciding whether to lock or pay for a float‑down.

Short FAQ

How long can I lock a rate on a refinance?

Typical lock periods are 15, 30, 45, 60, and 90 days. Longer locks (120+ days) may be available but often cost more. Choose a lock that covers expected processing time plus a buffer for delays.

Does a float‑down guarantee I’ll get the lowest possible rate?

No. A float‑down allows you to take a lower market rate only if the lender’s policy or the float‑down window permits it. There may be limits on how much the rate can drop and how many times you can use the feature.

What happens if my lock expires before closing?

If your lock expires, you’ll typically need to re‑lock at current market rates and possibly pay an extension or re‑lock fee. In volatile markets that can mean a higher rate, so managing timelines is important.

Can changing loan details void a rate lock?

Yes. Changes to loan program, loan amount, occupancy type, or adding cash‑out can affect the locked rate or invalidate the lock. Always confirm with your lender before making changes.

Rate locks and float‑downs are practical tools to manage interest rate risk during a refinance. They provide certainty and optional flexibility, but their value depends on timing, market conditions, fees, and the lender’s specific rules. Get written terms, compare offers, and plan your timeline carefully to make the best choice for your refinance.

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