What Is a Mortgage Rate Lock Float Down?
A mortgage rate lock float down (often just “float down”) is an add‑on to a rate lock that lets a borrower take a lower interest rate if market rates fall during the lock period. A standard rate lock protects you from rising rates for a set number of days (commonly 30–60). The float‑down gives you the flexibility to reprice the loan at a lower rate at a specified point (or points) while the lock is active — in exchange for a fee and subject to the lender’s rules.
Key benefits
– Protects you from rising rates while preserving the option to capture a lower rate if rates fall.
– Useful when rates are volatile and you expect a meaningful drop before closing.
– Can be cheaper than missing the drop and refinancing immediately after closing.
Main drawbacks
– Lenders charge for the option (often 0.5%–1.0% of loan amount or a flat fee).
– The option is not automatic — you generally must request it.
– Lenders set specific terms: timing, minimum required drop, number of float‑downs allowed, and fees.
How a mortgage rate lock float down works
1. Before locking, you negotiate a rate lock with a float‑down clause (confirm cost and rules).
2. You pay any required fee (upfront or rolled into closing depending on lender).
3. If market rates fall during the lock window and you want the lower rate, you notify the lender and exercise the float‑down per the contract.
4. The lender re‑prices the loan at the lower rate specified by the float‑down terms (which may be the current market rate or subject to a minimum threshold).
5. If rates don’t fall or you don’t exercise the option, you keep the original locked rate.
Special considerations and typical lender rules
– Time window: Float‑downs usually expire at or before closing (commonly 30–60 days).
– Number of float‑downs: Many lenders allow only one float‑down per lock.
– Minimum drop: Some lenders require a minimum rate decline (e.g., 0.25%).
– Fee structure: Could be a percentage of loan (0.5%–1%) or a fixed amount; some lenders charge a reduced fee if you exercise the float‑down.
– Borrower action required: Lenders usually won’t notify you — you must request the float‑down.
– Availability: Not all lenders or loan programs offer float‑downs; terms vary widely.
How much does it cost to float down a mortgage rate?
– Typical range: about 0.5%–1.0% of the loan amount (or a smaller flat fee at some lenders).
– Example: On a $300,000 loan, 0.5% = $1,500; 1.0% = $3,000.
– Because the fee varies, always get the exact cost and the break‑even math before purchasing the option.
Practical steps to decide whether a float‑down makes sense
1. Before you lock: Ask the lender/broker:
– Do you offer a float‑down? If so, what are the exact terms (fee, minimum drop, number of float‑downs, timing)?
– Is the fee refundable if the loan doesn’t close?
– Will the fee be paid up front or added to closing costs?
2. Estimate savings: Calculate how much a lower rate would save you in monthly payment and over time (see example below).
3. Compare savings to fee: Compute months to break‑even (fee ÷ monthly payment savings).
4. Consider alternatives: If the drop required to cover the fee looks unlikely, consider a straight lock and refinancing later, or other products (see “Other options”).
5. Monitor rates: Keep an eye on published mortgage rates (and ask lender if they have a minimum drop requirement).
6. If a drop occurs: Contact the lender immediately to exercise the float‑down and get confirmation in writing of the new rate and any changes to closing costs/schedule.
Example — quick numeric illustration
Assumptions:
– Loan amount: $300,000, 30‑year fixed.
– Original locked rate: 5.10% → monthly payment ≈ $1,629.
– New rate after drop: 4.60% → monthly payment ≈ $1,539.
– Monthly saving ≈ $90 → annual saving ≈ $1,080.
If the float‑down fee is 0.5% ($1,500), break‑even = $1,500 ÷ $90 ≈ 16.7 months.
If the fee is 1.0% ($3,000), break‑even ≈ 33.3 months.
Implication: For this example, a 0.50% fee is likely worthwhile because the float‑down pays for itself in under 2 years; a 1.0% fee may still make sense if you plan to keep the mortgage beyond ~3 years.
Float‑down vs. convertible ARM
– Float‑down: One‑time (or limited) option to lower a locked fixed rate if market rates fall before closing.
– Convertible ARM: Starts as an adjustable‑rate product; some ARMs let you convert to a fixed rate later (usually for a fee). Convertible ARMs are a different product and are mainly useful if you want lower initial payments and plan to convert if/when rates become attractive.
– Key difference: Float‑down is about the short pre‑closing period; convertible ARM addresses rate behavior over years after funding.
What other options do borrowers have?
– Straight rate lock (no float‑down): Avoid the extra fee; lock now and refinance later if rates fall sufficiently.
– Wait to lock (risky): If you expect rates to fall significantly and can tolerate some risk of rates rising.
– Adjustable‑rate mortgage (ARM): Lower initial rate, but rate can move up or down later per ARM terms.
– Rate negotiation/shopping: Compare float‑down costs across lenders — some offer lower fees or more favorable terms.
– Refinance after closing: If rates drop substantially post‑closing, refinance (many lenders allow refinancing shortly after closing, sometimes as early as six months).
Practical checklist before buying a float‑down
– Get the float‑down terms in writing before paying a fee.
– Confirm whether the option is automatically applied or must be requested.
– Ask about any minimum drop required and how the new rate is determined.
– Find out if the fee is refundable if the transaction fails.
– Calculate break‑even months and compare to how long you expect to keep the loan.
– Compare the float‑down fee vs the expected savings from refinancing later.
When a float‑down is usually a good idea
– Rates are volatile and you expect a reasonably likely drop.
– The fee is small relative to the likely monthly savings (rapid break‑even).
– You plan to keep the loan for long enough to recoup the fee (or the fee is small enough to justify short-term ownership).
When it’s usually not worth it
– The required rate drop is small and won’t recoup the fee.
– You plan to sell or refinance within a short time frame (months).
– Rates appear to be near the bottom of a cycle and likely won’t fall much.
Important: borrower responsibility
– Lenders commonly won’t alert you when rates fall; you must monitor rates and call to exercise the option.
– Confirm changes to closing costs or other terms if you exercise a float‑down.
The bottom line
A mortgage rate lock float‑down gives you downside protection (against rising rates) and upside flexibility (to capture declines). It can be a smart choice when rates are uncertain and the cost of the option is small relative to expected savings. But terms and fees vary widely, so get written details, run break‑even math, and compare alternatives before deciding.
Sources and further reading
– Investopedia — “Mortgage Rate Lock Float Down” (source article you provided): https://www.investopedia.com/terms/m/mortgage_rate_lock_float_down.asp
– Consumer Financial Protection Bureau — “What’s a Lock‑In or a Rate Lock on a Mortgage?”: https://www.consumerfinance.gov/ask-cfpb/what-is-a-rate-lock-or-lock-in-en-1799/
– Rocket Mortgage — “Float‑Down Option: Can It Lower Your Mortgage Rate?”: https://www.rocketmortgage.com/learn/float-down-option
If you want, I can:
– Run a personalized break‑even calculation with your loan amount, original rate, potential lower rate, and the lender’s float‑down fee.
– Draft a set of exact questions to ask any lender before purchasing a float‑down. Which would you prefer?