Once you lock your mortgage rate, that rate is guaranteed even if market rates drop. Your locked rate stays in place for the duration of the lock period. However, you may have options to take advantage of lower rates if they become available.
Here is what you need to know about rate locks and falling rates, including float-down options and refinancing.
Your Locked Rate Stays
When you lock a rate, you and your lender agree to a specific interest rate. The lender guarantees that rate for the lock period, protecting you if rates rise. But that protection works both ways: if rates fall, you are still locked into the rate you agreed to.
This is the trade-off of locking. You trade the possibility of a lower rate for the certainty that your rate will not increase. For most homebuyers, this certainty is valuable, especially when you are budgeting your monthly payment.
What Is a Float-Down Option?
A float-down option is a feature some lenders offer that allows you to lower your locked rate if market rates drop during your lock period. You pay for this option upfront, usually as a fee or a slightly higher rate at the time of locking.
If rates drop by a certain amount (often 0.25% or more), you can exercise the float-down to get the lower rate. If rates stay the same or rise, you keep your original locked rate and the float-down fee is not refunded.
Not all lenders offer float-down options, and policies vary. If you are concerned about locking and then seeing rates drop, ask your lender about a float-down before you commit to a lock.
Refinancing After Closing
If rates drop significantly after you close, you can always refinance your mortgage to get a lower rate. Many lenders offer no-cost refinances or streamlined refinance options that minimize closing costs.
Refinancing makes the most sense when rates drop enough that your monthly savings offset the closing costs within a reasonable timeframe. A general rule is to consider refinancing if you can lower your rate by at least 0.5% to 1%.
Should You Lock or Float?
If you are comfortable with the current rate and want payment certainty, locking is the smart choice. If you believe rates may drop and you have flexibility in your budget, you could float and wait to lock. Most borrowers choose to lock for peace of mind.
Talk to your lender about the current rate trend, your risk tolerance, and whether a float-down option makes sense for your situation.
Bottom Line
If rates drop after you lock, your locked rate stays. A float-down option can help, and refinancing is always available after closing. Lock when you are comfortable with the rate.
