A float down is when rates improve after you have "locked in" your interest rate and the lender agrees to float your interest rate down to the market rate for that given day.
Q: Do all lenders offer this?
A: No. Every lender has a different policy. Some do not offer a float down option at all
Q: How do I know if the lender I am locked with will offer a float down?
A: Ask your mortgage broker. Ideally, you would want to ask this question prior to locking.
Q: What do I do if I am already locked and my new lender will not float my rate down?
A: Here are some options:
- If you are purchasing a homeand settlement is near, you want to close on time. In this situation, I would recommend staying put to ensure a timely settlement
- If you are refinancing, you need to have a candid conversation with your broker. If rates have only moved .125%, the broker should keep the process flowing with the selected lender. Moving your loan from one lender to another is not as easy as it sounds. Particularly now that we are dealing with HVCC (this is an entirely different post) .
Q: What happens if I break my lock?
A: The lender has to pay a fee up to .375% of the loan amount for a loan that is never delivered. The broker will receive worse rates from that lender in the future to cover losses and the consumer ultimately loses
In short, ask the proper questions up front. Ask your broker what they are going to do for you if rates improve. Do business in good faith, understand that when you lock a rate in, you are making a commitment to your broker and your lender. Should you break that commitment, it does matter. Know the broker that you are working with is a seasoned professional that you can trust to give you honest answers. If you do these simple things, you will get the best rate available for you and have a positive experience.