Refinance guide rate locks and float-downs on a refinance

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Rate locks and float-downs on a refinance: what they are and when they make sense

When you refinance your mortgage you’re not just negotiating points and monthly payments — you’re also making a bet on future interest rates. A rate lock (or lock-in) is an agreement between you and the lender that guarantees the interest rate quoted for your refinance for a specified period (commonly 30–90 days). A float-down is an add-on option that lets you take advantage of a lower market rate if interest rates fall during the lock period.

Rate locks make sense when you have a target closing date and want protection against rising rates. Float-downs are useful in volatile markets where rates might move lower between the date you lock and the date you close. They’re most relevant when closing is near but there’s still enough time for rate movement — for example, after underwriting is underway but before “clear to close.”

Benefits and drawbacks

Understanding the trade-offs helps you choose the right approach for your refinance.

  • Benefits of a rate lock
    • Certainty — you know the rate you’ll get, which simplifies budgeting and payoff calculations.
    • Protection — you’re shielded from rate increases during the lock period.
    • Simplicity — most lenders handle locks routinely and it’s part of the standard refinance workflow.
  • Drawbacks of a rate lock
    • Locked-out of drops — if rates fall you won’t benefit unless you have a float-down option.
    • Time pressure — locks expire, and extensions can be costly if closing is delayed.
    • Possible higher upfront cost — some locks or lock extensions carry fees.
  • Benefits of a float-down
    • Flexibility — lets you take advantage of a favorable rate decline during your lock.
    • Peace of mind — you’re covered if rates rise (by the lock) and can also capture a drop.
  • Drawbacks of a float-down
    • Cost — float-downs often require an additional fee or higher initial rate/points.
    • Restrictions — one-time use, minimum drop required, or limited to certain windows.

Costs and fees to expect

Costs vary widely by lender and market, so ask lenders for precise numbers. Common cost items include:

  • Lock fee — many lenders don’t charge a separate “lock” fee, but some larger or wholesale lenders may charge a small fee or require a deposit.
  • Float-down fee — can be a flat fee or a percentage of the loan amount. Typical structures include a one-time fee (e.g., several hundred dollars) or a percentage of the loan balance (sometimes 0.125%–0.25%).
  • Extension fees — if your lock expires before closing, lenders may offer extensions for a fee (flat or per-day rate).
  • Points and buy-downs — paying points to lower the rate is separate from locking; if you buy the rate down, determine whether float-downs still apply.
  • Lost credits — some lender credits or promotional rates may vanish if you exercise a float-down; check the fine print.

Step-by-step process for locking and using a float-down on a refinance

Follow these steps to manage rate risk during a refinance:

  • 1. Shop lenders and compare lock policies. Ask about standard lock durations, the availability and cost of float-downs, extension fees, and any conditions tied to float-downs (minimum rate drop, timing).
  • 2. Time your lock. Ideally lock when you are reasonably sure the refinance will close within the lock period — often after appraisal and underwriting milestones are satisfied.
  • 3. Choose the lock length and float-down option. Select a lock term that covers your expected close date. If market volatility is a concern, consider adding a float-down if the cost seems justified.
  • 4. Get lock confirmation in writing. Ensure the lender provides a written lock agreement that states the locked rate, lock expiration date, float-down terms (if any), fees, and procedures to request the float-down.
  • 5. Monitor rates and keep documents current. Stay in close contact with your loan officer and make sure your credit profile and property information don’t change unexpectedly.
  • 6. If rates fall, request the float-down per the lender’s rules. Be prepared to provide any required documentation and to pay the fee at that time if applicable.
  • 7. Close with the final locked or float-downed rate. Make sure the final Closing Disclosure reflects the agreed rate and any fees associated with the lock or float-down.

Common pitfalls to avoid

  • Assuming all float-downs are the same. Terms vary: some allow a one-time reduction only if rates fall by a set amount; others limit the window for exercising the option.
  • Locking too early. Early locks can force you into extension fees or miss better rates if your closing timeline shifts.
  • Not documenting the lock. Verbal promises aren’t enough — always get written confirmation showing the rate, expiration, and float-down rules.
  • Overlooking extension and float-down costs. Small fees can erase the benefit of a slightly lower rate; run the math before committing.
  • Making credit or job changes during the lock. Opening new credit lines, large purchases, or employment changes can affect your loan and may invalidate some rate terms.

Short FAQ

Should I lock the rate as soon as I apply for a refinance?

Not necessarily. Lock when you have a clear closing timeline and key contingencies (appraisal, title, income verification) are mostly complete. Locking too early increases the risk of paying extension fees or missing better rates later.

Is a float-down worth the cost?

It depends on the fee versus potential savings. Estimate the monthly savings from a lower rate, multiply by the expected time you’ll keep the loan, and compare that to the float-down cost. If you plan to sell or refinance again soon, the benefit may be smaller.

What happens if my lock expires before closing?

If a lock expires, you’ll either accept the current market rate, negotiate a new lock (possibly with an extension fee), or delay closing. Communicate early with your lender to request an extension and learn the costs.

Can I have multiple float-down opportunities?

Most lenders offer a one-time float-down, and some don’t offer float-downs at all. If you need multiple opportunities, discuss that explicitly — it will likely increase costs.

META: rate locks, float-downs, refinance guide, mortgage refinancing, lock fees, extension fees

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