In this article
- Is It Possible To Actually Unlock A Better Mortgage Rate?
- Float Down Options
- Rules Of The Float Down
- Understanding How Float Downs Work
- How To Switch Lenders After You Have Already Locked In
- Comparing Rates With Different Lenders
- Is It Wise To Change Lenders After Locking In A Rate?
- What If The Mortgage Rate Expires Before The Closing?
- What Exactly Does It Mean To Lock-In A Mortgage Rate?
- Do I Need To Lock In A Mortgage Rate?
- Will My Specific Loan Affect The Mortgage Rate?
- Mortgage Rate Lock FAQ
- What Will Happen If My Mortgage Rate Lock Expires Prior To The Closing?
- Is It Possible To Lock In A Mortgage With Multiple Lenders?
- Is It Possible To Change Lenders After The Locked In Rate
- Is It Possible To Negotiate Mortgage Rates?
- Is It Possible To Back Out of A Mortgage Rate Lock?
- Should I Lock In A Mortgage Rate?
- Can The Loan Amount Be Changed After The Rate Lock?
- Is There A Charge To Lock In A Rate?
- What Happens If A Rate is Locked In And It Lowers?
- What Is The Best Day To Lock In A Mortgage Rate
- Would It be Best To Lock My Mortgage In Today?
Have you ever wondered what would happen once you lock in a mortgage and the rate went down?
If you lock in a mortgage and the rate actually increases, you can consider yourself lucky as you have the lower rate locked in. However, what happens when the rates begin to fall?
It is not possible to simply go and unlock a lower rate. Your best solution would be to ask your lender about a possible “float down” rate, however, this will come with an additional fee.
There is also the possibility of switching to another lender. However, this will mean having to start all over, so this is a decision you will want to make with extra care and ensure that the rate is low enough for the additional work.
Is It Possible To Actually Unlock A Better Mortgage Rate?
The mortgage rate lock is actually considered to be a commitment between your lender and yourself. If the home loan is able to close by the agreed by date, a lender is unable to change the rate, regardless of how high they may see, to be able to climb.
This is actually very good news for the borrower as once you are locked into a rate, there is no possibility of high interest rates.
There is no possibility of unlocking the mortgage rate once it has already been locked in. However, there are other ways in which you can possibly obtain a lower rate once you have already locked in the previous rate.
It is important to understand that this type of agreement will go both ways. If the rates should drop at an incredible rate, you can not simply expect a lender to jump in and offer the lower rate.
Simply put it is not possible to unlock your rate once it has been locked. However, it may be possible to work with a lender if rates are dropping at a substantial rate.
If you see that there is a significant drop in rates, you may be able to work with a lender to adjust the rate. However, the rate will typically need to be at least a point in cost change for this to work.
There are two significant strategies that you will want to keep in mind to get a lower rate once you have already locked in.
These two ways can help you secure a substantially lower rate once you have locked in.
You can talk to your lender about a possible “float down option” in which you will pay an additional fee in return for a lower rate.
Canceling Your Loan Application And Getting A New Lender It is always possible to leave your current lender and begin with one who is able to start you off with a lower rate.
However there are a number of risks and benefits to both of these options. You are either going to be dealing with a rather long delay or a large float-down cost.
However, if the savings will justify it, it very well may be well worth your time.
Keep in mind that you may have a loan for a number of years and a lower rate has the potential to save you thousands over the course of the loan.
Let’s take a moment to look at these options a little closer.
Float Down Options
A float down option is an agreement that you will create with your lender that is made once you have already locked in a rate.
There will be an additional fee between .5% and 1% of the total loan amount in order to drop your loan to the current rate.
Consider that a float down provision on an estimated $300,000 loan would have a cost of about $1,500 or .5% of the loan.
The amount that you will need to pay may be reduced by your overall qualifications and current market conditions.
Keep in mind that this fee is not going to need to paid at the time of the float down option. However, it will be combined in with the closing costs.
Rules Of The Float Down
A number of lenders offer various float down options. However, their fees and policies will all vary.
In many instances you will need to drop the mortgage rate by at least .25% in order to use a float down option. Additionally, a float down fee may cost upwards of 1% of the amount of the new loan.
However, that 1% could be considerably cheaper as opposed to the amount of interest you might have paid at a higher interest rate. In some instances though a float down option is not going to be the best solution. The rate will need to drop low enough to justify the overall cost.
Understanding How Float Downs Work
Consider that you have been approved for a $300,000 loan which is locked in at a rate of 3.75%. However, the rates are nosedive and you would like to be able to take advantage of the lower rates.
This is what you could expect in mathematical terms, depending upon how low the rates have fallen will determine the cost of the float down.
Loan Amount – $300,000
Locked Rate – 3.75%
Float Down Fee – .5% or ($1,500)
1% or ($3,000)
A New Rate
3.70%, 3.50%, 3.70%, 3.50%
Interest Savings Over 30 Years
$3,000, $15,200, $3,000, $15,200
Does it seem like this would be worth it?
I would say that would be a definite yes.
However, it is also important to remember that not everyone is going to keep a mortgage for around 30 years. In fact, the average tends to be just seven. When you begin to calculate your savings, you will need to consider how long you plan to stay in the home.
How does the float down look if you stay for seven as opposed to 30?
Loan Amount – $300,000
Locked Rate – 3.75%
Float Down Fee .5% or ($1,500), 1% or ($3,000)
The New Rate – 3.7%, 3.5%, 3.7%, 3.5%
Interest Savings Over 7 Years $1,030, $5,100, $1,030, $5,100
One would have to think if it is actually worth it?
In order to find out if your particular lender offers a float down option, you simply need to ask.
If you are just now browsing but have a feeling that rates are going to drop, it would be in your best interest to ask the lender about their policy on float down options.
How To Switch Lenders After You Have Already Locked In
Let’s consider that you have already locked in a mortgage rate and the rates begin to fall, however there is no float down option available. Or perhaps your lender simply can not offer one low enough to justify it.
You are not out of options!
The second option you have available to you if rates drop is to simply shut the door and leave. It is actually possible to cancel your application and start at the beginning, which would be applying with a number of lenders until you find one with a low rate.
Changing lenders at the last minute can actually lead to large savings in interest and fees.
Looking at the above example, it would be possible to save over $15,000 with a rate that was just a quarter of a percentage point.
Additionally, if you do leave a lender before the closing of the loan, they will not be allowed to charge or penalize you. There are federal protections to borrowers that allow them to opt out of a loan for any reason before it closes.
Comparing Rates With Different Lenders
Is It Wise To Change Lenders After Locking In A Rate?
It is always possible to change lenders once you have found a lower rate. However, you need to ask yourself if you should.
If you are going to be refinancing your home, the answer would generally be a yes. However, if you are purchasing a home, you may want to reconsider.
It is not recommended to cancel a loan application if you are purchasing a home and getting ready to close within the month. This is a strategy that typically works best for individuals looking to refinance.
In fact, you would more than likely be better to apply with two brokers at the same time, If one is able to give you a better rate, the other will be there just to see if the underwriting could be done any faster.
The drawbacks to switching lenders nearing the end is considerably more dangerous for homebuyers. It is not as serious for individuals looking to refinance, but one should still know the process.
Down Payments – If you are preparing to purchase a home and your application is canceled before the closing, it is possible to lose thousands of dollars as the seller has the right to keep it if you miss the closing date.
Paperwork – Let’s be honest one of the worst things about the house buying process is all the paperwork. When you restart the loan process, you are going to have to submit all of that paperwork again.
Time – By choosing to opt for another lender you are going to add a t least another month or so to the process.
Fees – In many instances you are going to have to pay several third-party fees two times.
There are a number of other difficulties that may arise in the process such as a lower income, drop in credit rating, bank statement loans, down payment gift letters: all of which could make it more difficult for another lender to approve your application.
If you had difficulties obtaining an initial approval, it may be best not to toss it away for a lower rate.
Due to these challenges it is easy to see why a lender switch is not always the best strategy unless you are in a no-win scenario with your current lender.
However, if you are simply refinancing, you are not going to run into many situations. You’re home is not on the line and there is no chance of losing any money.
If you do not mind a little extra time and work, this could be an excellent solution to save a considerable amount of money over time.
What If The Mortgage Rate Expires Before The Closing?
Once you have committed to a mortgage rage you are also committed to a “worst-case” scenario.
If the loan does not close before the rate expires and the rate increases, you will be forced to pay a higher rate. In most cases though, you may not have to take the higher rate if you are able to pay a closing extension fee.
However, if the rate lock period should expire and the rates go down, you will not get the lower rate. You will close at the rate you initially locked in for.
However, a number of lenders will extend your lock if the interest rates have risen.
In many instances it will cost nothing to simply add an extra day as well as a small fee for an additional week or two. This is typically well worth it as interest rates have shot up recently.
It may be possible to re-lock at the same rate if you are unable to close on time.
For example, if you had locked a mortgage for 30 days and within a week you realize that it is going to take 35 days to close, it may be possible to re-lock that rate with a new 30-day period. In a situation like this it would be less costly to pay for a 7 day extension.
If the rates have not changed or fallen, the lender will typically re-lock your rate at no extra charge.
If the rates have been raised, it may be necessary to negotiate a new rate. Additionally, you can wait for the rates to lower before your expiration and then re-lock them.
What Exactly Does It Mean To Lock-In A Mortgage Rate?
When an individual locks in a mortgage rate, they are agreeing to the overall cost structure and interest rate that is a binding agreement between you and the lender.
The mortgage rate will include fees, monthly payments, and the annual interest rate.
For example, it is possible to lock in a 30 year fixed rate mortgage at 3.5%, meaning that you will pay 3.5% interest for the lifetime of the mortgage unless you refinance the loan at some point.
Do I Need To Lock In A Mortgage Rate?
It is impossible to actually close on a home if you have not locked in an interest rate, it is an essential part of the process.
Every mortgage rate agreement will include:
– An interest rate
– A specific date that the lock period will expire
-The cost of the rate
– The actual mortgage program
While not every single mortgage lender is going to require a rate lock agreement in writing, it is the best policy for you.
It is possible to lock your rate in person or sign it via fax or electronically.
It is simply best to be able to prove that you locked in at a specific rate for a number of days to ensure you know exactly what you are committing to. Written agreements are just an easier way to do this.
Will My Specific Loan Affect The Mortgage Rate?
Mortgage rate locks work in a similar nature to conventional loans and government backed loans.
Government backed loans are overwatched by federal agencies such as USDA, VA loan, and FHA loan, however, private lenders will have the final say on their policies and rates.
With that it is important to know that some loans are simply going to take longer to close which will affect how long you need to lock in a rate.
It is always best to speak with the lender for an estimated closing time to avoid any potential rate increases while waiting for the loan to approve.
Mortgage Rate Lock FAQ
What Will Happen If My Mortgage Rate Lock Expires Prior To The Closing?
If the rate was to expire before you were able to close, you are going to have to re-lock in a rate in order to close the loan. If the rates have not moved, you will typically get the same rate you qualified for. However, if the rates increased, your rate will more than likely go up. If the rates dropped during this time, you sadly will not get the lower rate. In many instances, you will receive the original rate you were locked in for.
Is It Possible To Lock In A Mortgage With Multiple Lenders?
It is very possible to lock in mortgages with a number of lenders. Some borrowers will lock in one rate and allow the other to float as a “just in case”. This way if the rates should fluctuate, they have a backup plan. They will be able to lock in at a lower rate with the floater and cancel the other application with fewer consequences.
Is It Possible To Change Lenders After The Locked In Rate
It is possible to change lenders once you have locked a rate. However, you are going to have to begin an application process with a new lender. This means the who process from pre-approval to submitting documentation and the underwriting. Consider that closing a mortgage or a refinance will typically take a month. If you are close to your original closing date, you will want to weight the overall consequences of time before you decide to change lenders.
Is It Possible To Negotiate Mortgage Rates?
Despite what many may believe, it is very possible! You can actually sit and negotiate the best rate with your lender. The average first time homebuyer is unaware of this. In fact, this is easiest to do while you are in the browsing stage of the process. It is possible to get a number of quotes and find a low rate that you can leverage with different lenders. If you have already locked in a rate and they fall, you still may have some power of negotiation. Lenders invest a great amount of time and money and when they lose a potential borrower, they lose it all. In some cases, they still may try to work with you. It is always worth asking.
Is It Possible To Back Out of A Mortgage Rate Lock?
You are able to back out of a lock, however, there will be consequences. When you back out of a rate lock, you give up on the application in which you have spent a great deal of time on. You are going to have to start at the very beginning and will more than likely have to pay fees for a second time. In addition, you may be putting the entire process in jeopardy as a new loan application is going to delay the closing date that was listed on the contract. If you already have a locked rate and they should fall, it is best to talk about float down options as opposed to backing out fully.
Should I Lock In A Mortgage Rate?
Without a doubt, yes! When you lock in a rate you are protecting yourself from a fluctuating market. This is also going to allow your lender to finalize the loan. A locked in rate will also allow you to calculate average payments before the loan has been finalized. However, before you lock in any rate, be sure you have read and understand all of the fine print and fees.
Can The Loan Amount Be Changed After The Rate Lock?
No, this is not possible. A locked-in rate is going to be specific to your loan, which includes the amount of the loan and it can not be changed. Speak with the loan officer before you finalize the rate if you feel there needs to be a significant change to the loan.
Is There A Charge To Lock In A Rate?
The majority of lenders are not going to charge you to lock in a rate as this cost is typically factored in with various fees and interest. However, if you are in need of a longer rate lock period, the lender may tack on additional fees that will be included in the closing cost. Additionally, there may be additional cost for extending a rate lock. Many lenders will measure this cost as a percentage of the loan amount.
What Happens If A Rate is Locked In And It Lowers?
If interest should fall after the rate lock, you will still be committed to the initial agreement, unless you have a float-down provision included in the loan. Of course, you are able to cancel the loan application and choose a lender with a lower rate, however, you will still be responsible for the financing of your home by the specified closing date,
What Is The Best Day To Lock In A Mortgage Rate
Typically, Monday is going to be the best day to lock in the lowest rate, whereas Wednesdays are typically going to be the highest. These statistics come from the mortgage data firm, MBSQuoteline.
Would It be Best To Lock My Mortgage In Today?
Mortgage rates have been hitting record lows, actually falling into the 2s for a number of borrowers.
While rates are on the rise, they are still relatively low. It is possible for borrowers to find incredibly low interest rates throughout the United States.
If you are not quite at the position to lock in a rate, you can lock in with one lender that offers a float-down provision.
It is best to start looking for a low rate as soon as possible to find out what your options are.