Can You Change Your Mortgage Rate After Locking?
Explore if and how your mortgage rate lock can be adjusted. Understand the options and considerations for optimizing your loan amidst market shifts.
When purchasing or refinancing a home, securing a mortgage interest rate is a significant step. A rate lock provides certainty in a fluctuating market, ensuring the interest rate on a loan remains fixed for a specified period. While this offers protection against rising rates, market conditions can shift, sometimes leading to lower rates after an initial lock. This article explores the possibilities and considerations involved in adjusting a mortgage rate once it has been locked.
Understanding Your Rate Lock
A mortgage rate lock is an agreement between a borrower and a lender, guaranteeing a specific interest rate for a home loan over a defined timeframe. Its primary purpose is to shield the borrower from potential interest rate increases during loan processing and closing. Without a rate lock, the interest rate could change daily, exposing the borrower to market volatility.
Key elements include the agreed-upon interest rate, the specific loan program (such as fixed-rate or adjustable-rate), and the lock period duration. Lock periods typically range from 30 to 60 days, though some lenders offer shorter or longer periods. A longer lock period might come with a slightly higher interest rate or an associated fee, as it represents greater risk for the lender. This agreement ensures the interest rate at closing will match the locked rate, provided no changes occur to the loan application or borrower’s financial profile.
How a Locked Rate Can Be Adjusted
Even after locking in a mortgage rate, specific mechanisms may allow for adjustment if market conditions become more favorable. One common option is a “float-down” provision, which permits a borrower to secure a lower interest rate if prevailing market rates decline by a certain amount. This feature protects against rate increases while offering the opportunity to benefit from significant rate drops.
To activate a float-down, lenders typically require market rates to drop by a minimum threshold, often 0.25% to 0.50% below the original locked rate. Borrowers usually need to request this adjustment, and it may involve a fee, ranging from 0.125% to 1% of the total loan amount. For example, on a $300,000 loan, a float-down fee could be between $375 and $3,000. This fee might be paid upfront or rolled into closing costs, and some lenders may offer a float-down option at no additional cost.
Another pathway to adjust a locked rate is through re-locking. This involves canceling the existing rate lock and initiating a new one at the current, lower market rate. Re-locking may come with new fees or require a new lock period. Lenders are not obligated to offer re-locking, and their policies vary significantly.
Deciding Whether to Adjust Your Rate
Evaluating whether to adjust a locked mortgage rate requires careful consideration of several financial and practical factors. The magnitude of the rate drop since the initial lock is a primary consideration; a minor decrease might not generate enough savings to justify the effort and potential costs involved.
Associated costs are a significant component of this decision. Float-down fees, re-lock fees, or extension fees can range from a few hundred dollars to a percentage of the loan amount, typically 0.25% to 1%. These upfront expenses must be weighed against potential interest savings over the loan’s lifetime. For example, a $1,500 float-down fee on a $300,000 loan, resulting in a 0.125% rate reduction, could take years to recoup through monthly payment savings.
The remaining time until loan closing also influences the feasibility of an adjustment. If closing is imminent, a new rate lock or float-down process might not be practical due to processing time. Direct communication with the lender is essential to understand their specific policies, available options, and any associated costs for your loan.