As we discussed in our article about Rate Locks, typically when you lock a rate, you get what you get. That is to say, the rate is locked in for good (rates worsen) or bad (rates improve). However, with the floating rate lock, you are sometimes able to take advantage of improvements.
[Learn more about Mortgage Rate Pricing and How Mortgage Rates Move]
Some lenders allow a float down for some fraction of the improvement. For example, if you are locked at 3.625% paying one point and mortgage prices improve such that 3.625% is no points, then some lenders will allow a float down. Generally, a float down requires at least one point improvement in fees and then the lender will agree to give you half the improvement. This means that in our scenario above, the new rate after the float down is 3.625% paying a half point.
Note: not all lenders allow a float down, so make sure you find out what policy you are locking in ahead of time.
Float downs are a way for banks to avoid loosing business when rates are in a downward environment. Every bank that offers float downs has some fee associated with the service so it’s important to understand that cost. Usually it makes more sense to switch banks if the savings is compelling. Switching banks within a brokers list of approved lenders is easier than moving from a large commercial bank to another. Of course, if you are moving from a bank to a broker, your savings are likely to be substantial!
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Kick your feet up while we crunch the numbers. Pre-approval can be done very quickly if you provide a complete and accurate loan application and supporting documentation.
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