What If Rates Drop After I Lock My Mortgage Rate?

What to Do if Mortgage Rates Drop After You Lock Your Rate

If mortgage rates decline after you lock your loan terms, you may have options for reducing your financing costs. However, this is not guaranteed in all situations.

Float-Down Option

Some lenders offer a float-down option along with their rate lock agreement. If your rate lock agreement has a float-down option, you can exercise it when there's a significant drop in interest rates during your lock-in period. You may have to pay a fee to exercise the option. Work with your lender to understand how much rates must drop before yours can float down, and what costs are involved, if any.

Discuss Options with Your Loan Provider

If you don't have a float-down option, you can negotiate with your lender to see if there are any options for reducing rates. However, there's no guarantee your lender will work with you. Remember, rates are unpredictable, and the lock-in protects you from rising rates. Your lender takes on the risk of having to offer a loan at the lower rate if rates increase, and you take on the risk of rates dropping.

Consider Switching Lenders

You can change lenders if rates drop during your lock-in period, and hopefully your new lender would offer a lower rate. However, this would involve restarting the mortgage application process, which can create delays and potentially result in you being charged certain fees again. Rates may also change again while you're waiting for approval from your new lender.

Let the Rate Lock Expire

Allowing your rate lock to expire is another option. When your rate lock expires, your rate with your current lender might change to the rate that is currently available. This may result in a lower rate at the time. However, there's also a risk that rates will increase. While the rate lock protects against rising interest rates, fees or price adjustments may apply if it expires.

Allowing your rate lock to expire would also potentially delay your purchase.

Refinance Down the Road

Finally, you have the option to go forward with your original loan at the agreed-upon rate and refinance in the future. If you decide to refinance your mortgage later, remember that rates may not drop so be sure you’re comfortable with the rate and payment you originally agree to.

How to Time Your Mortgage Rate Lock

Picking the right time to lock in your mortgage rate can be complicated. There are many factors to consider, including:

• Closing date: You don't want your rate lock to expire before closing, so you need to lock in at a time that works with your closing date.
• Personal financial changes: If you expect to improve your financial situation, you may want to wait to start the mortgage process so that when you lock in your rate, you qualify for a more competitive offer.
• Market volatility: The likelihood of mortgage rate changes can also affect when you lock in. If you suspect rates may increase soon, you may want to lock in ASAP.

Your loan officer can help you evaluate the full picture so you can decide on the best time to lock in your rate.

Final Thoughts: You Lock Your Rate, Then Rates Drop—Now What?

A rate drop after you lock in can feel disappointing, but remember that you are also protected from a rate increase. You might have options to drop your rate even if this happens, and refinancing later may be an option. A mortgage lender can help you find a loan that fits your budget, so contact Freedom Mortgage today to get started finding the financing that's right for you.