Can I unlock a mortgage if interest rates go down? Two strategies
If you lock a mortgage and then rates rise, you’re in luck: You get to keep the lower interest rate you locked in. But what if you lock a mortgage and then rates fall?
Unfortunately, you can’t just unlock your rate to avoid paying higher interest. Your best option is to ask your lender about a rate “float down,” although this will cost you an additional fee.
Switching lenders last minute is also an option for refinancers. But it means starting over from square one, so make the decision carefully and be sure your new rate is low enough to be worth it.
In this article (Skip to…)
- Can you unlock?
- Rate strategies
- Float down options
- Switching lenders
- Expired rate lock
- More about rate locks
- Rate lock FAQ
What does it mean to “lock in” a mortgage rate?
Locking in a mortgage rate means agreeing to an interest rate and cost structure that binds you and your lender.
A mortgage rate lock includes the annual interest rate, fees, and monthly payment plan.
For instance, you might lock in 6.5% for a 30-year fixed-rate mortgage — meaning your lender guarantees you’ll pay 6.5% interest for the whole loan term, and it won’t raise or lower your rate unless you refinance.
Can you unlock a mortgage rate?
Your mortgage rate lock is a commitment between you and your lender. As long as your home loan closes by the rate’s expiration date, your lender cannot change your rate — even if current rates suddenly skyrocket.
This provides great peace of mind for borrowers. Once you’ve locked, there won’t be any surprise price increases.
You can’t unlock your mortgage rate after locking. But there may be other ways to get a lower rate after you’ve locked.
However, the agreement works both ways. If rates suddenly fall, you can’t just back out of the rate lock and expect your lender to offer you a lower interest rate.
In other words, you can’t unlock your rate after locking. But there may be ways to get out of a rate lock if interest rates fall substantially.
“If rates go down significantly, there is also a chance that your lender will be able to adjust your rate. But the drop typically needs to be at least a point in cost change,” points out Jon Meyer, The Mortgage Reports loan expert and licensed MLO.
Two strategies to get a lower rate after locking
So, if you lock in a mortgage rate and the rate goes down, you’ll usually have to keep the higher interest rate you locked in. But it’s not impossible to get a lower rate. You could:
- Ask your lender about a “float down option.” You’ll pay an additional cost at closing in return for getting lower current market rates
- Cancel your loan application and switch lenders. You abandon your current lender and start the entire loan process over with a new lender that can offer you a lower rate
There are huge benefits and risks to both of these strategies. You’ll either face a large float-down cost, or a big delay and added paperwork.
But if the savings you’ll see from a lower mortgage rate are significant enough, those hurdles may well be worth it.
After all, if you keep your loan for years, a lower mortgage interest rate could save you thousands in the form of lower monthly mortgage payments.
So let’s take a closer look at these two options.
Float down options
A float-down provision or float-down option is an agreement between you and your lender that can be made after you lock a rate.
You’d pay an additional fee — usually 0.5% to 1% of the loan amount — to drop your locked-in rate to current mortgage rates.
- For instance, a float-down provision on a $300,000 loan would likely cost around $1,500 (0.5 percent of the loan amount)
The amount your rate will be reduced depends on the current market conditions and your qualifications as a borrower.
Note that you don’t pay this fee at the time of the float down. Rather, it’s rolled into your closing costs.
Many lenders offer float-down options. But policies and fees vary.
Often, you have to be able to drop your mortgage rate at least 0.25% to use a float-down option. And the float-down fee can cost as much as 1% of the new loan amount.
Paying an additional 1% upfront is still relatively cheap compared to the amount of interest you’re likely to save long-term. But a float-down option isn’t always worth it. Your rate has to drop low enough to justify the cost.
How do float downs work?
Say you’re getting a $300,000 mortgage loan and you’re currently locked in at 6.5%. Then you see rates falling and you want to take advantage.
Here’s how the math looks — depending on how far rates have fallen and how much the float down costs:
|Float Down Fee||0.5% ($1,500)||1.0% ($3,000)|
|Interest Savings (30 Years)||$8,568||$17,706||$8,568||$17,706|
But these savings take time to build
Keep in mind the savings from a lower interest rate accumulate gradually, over 30 years. Most homeowners don’t keep their mortgage for the entire 30 years. The average is around seven years.
So when you calculate your savings, you need to factor in how long you’ll stay in the home.
Here’s how the cost of a float down looks if you only keep your mortgage for seven years instead of 30:
|Float Down Fee||0.5% ($1,500)||1.0% ($3,000)|
|Interest Savings (7 Years)||$2,968||$5,956||$2,968||$5,956|
To find out whether your lender offers a float-down option, simply ask.
And if you’re still in the shopping phase but think interest rates might drop further in the near future, asking about a float-down option before you rate lock might be wise — just as a precaution.
Switching lenders after locking
Here’s a second scenario: You lock a mortgage rate, then rates fall, and your lender doesn’t offer a float-down provision. Or your lender can’t offer you a low enough rate to justify one.
You’re still not out of options.
The second way to ‘unlock’ your mortgage rate after a rate change is by simply jumping ship. You could cancel your loan application and go back to square one, applying with multiple lenders until you find the lowest possible rate.
Switching lenders at the last minute could help you save big on interest and loan costs.
Using the example above, you could save more than $17,000 by finding a rate just a quarter percentage point lower than your locked rate.
Keep in mind that if you leave your lender before the loan closes, the lender is not allowed to penalize you or charge a cancellation fee. Federal protections give borrowers the right to opt out of a loan at any time before they close.
Should you change lenders after locking a rate?
You have the right to change lenders after locking to find a lower rate. But should you?
If you’re refinancing your home, the answer may be yes. If you’re buying, the answer is likely no.
The real estate market is unpredictable. If you pull the plug on your current loan application, you’ll miss your scheduled closing date — and someone else could make an offer on the house you were planning to buy.
You’d lose the house and you could lose the earnest money deposit, too.
When you’re refinancing, you already own the home, so delays are less risky.
Drawbacks of switching lenders mid stream
The drawbacks to switching lenders are especially dangerous for home buyers. The stakes are lower for refinancers, but they should still understand the process:
- Earnest money: If you’re purchasing a home and you cancel your application before closing, you could lose thousands in earnest money because the seller has the legal right to keep it if you miss your closing date
- Paperwork: Re-starting your loan means you need to re-verify your credit and income and submit another loan application
- Time: Re-doing the full application process can take a month or more
- Fees: There’s a good chance you’ll have to pay third-party fees (like the credit check and home appraisal) twice
Other difficulties can arise if you have special loan considerations like poor credit scores, lower income, a down payment gift letter, a bank statement loan, or another attribute that makes it harder for lenders to approve your loan.
If it was hard to get approved, don’t rock the boat
If it was challenging to get approved in the first place, it’s not worth throwing away your application to search for a slightly lower rate.
Because of these challenges, the lender-switch strategy is not great unless you’re between a rock and a hard place — locked in with a lender with high rates and no float down option.
Again, the stakes are lower if you’re refinancing. Your home is not on the line, and you don’t stand to lose any earnest money.
If you don’t mind some extra work and waiting time, this might be a good solution for you (and a way to avoid the 0.5% to 1% float down fee).
What if my mortgage rate lock expires before closing?
Once you lock in a mortgage rate, you’re committed to a “worst-case” scenario.
- If your loan fails to close before your rate lock expires, and rates have gone up, you’ll pay the higher rate. (“Although, in some cases, you may not have to take the higher rate if you can pay a closing extension fee,” says Meyer)
- But if your rate lock period expires and rates have gone down, you don’t get the lower rate. You’ll close at the rate you locked
However, many lenders will allow a rate lock extension if interest rates have risen.
How much is a rate lock extension?
It may cost you nothing to add a day or two, and a small fee (0.125% to 0.25% of the loan amount) to add a week or two. That’s probably worth doing if interest rates have shot up recently.
You may also be able to re-lock at the same interest rate if you don’t close on time.
- For instance, if you locked in a mortgage for 30 days and after a week, you realize that it will take 35 days to close, you may be able to re-lock the same loan with a new 30-day period of time. (“In this instance, paying a 7-day extension fee will be less costly,” adds Meyer)
If rates have not changed or have fallen a bit, your lender should let you re-lock at no additional charge.
If rates have risen, you may have to negotiate a new lock. Or take a chance on rates coming down before your expiration and re-lock then.
Do I have to lock a mortgage rate?
You cannot close on a home loan without first locking in an interest rate — you have to do it, even if you wait until an hour before the lender prints your final documents.
All mortgage rate lock agreements contain:
- An ‘effective date’ when your rate lock period expires
- An interest rate
- A specific mortgage program, like a 30-year fixed loan or a 5/1 ARM
- The cost of your rate (for example, 1 point, which is 1% of the loan amount)
While not all mortgage lenders require rate lock agreements to be in writing, it’s better for you to have a written agreement.
You can lock your rate in person, sign and return a fax, or sign electronically with a service like DocuSign.
It’s better to prove that you locked in X rate for Y number of days and to make sure you understand what you’re committing to. A written agreement makes this easier.
Does my loan type affect my mortgage rate lock?
Mortgage rate locks work more or less the same with any traditional type of mortgage — government-backed and conventional loans alike.
Yes, government-backed loans — VA, USDA, and FHA loans — are overseen by federal agencies such as the FHA loan, VA loan, and USDA mortgage, but private lenders still have the final say on rates and rate lock policies.
That being said, some loan types may take a little longer to close, which could affect your decisions about when — and for how long — to lock in your rate.
Ask your loan officer for a closing time estimate to avoid possible rate increases in the days leading up to loan approval and closing.
Why do mortgage rates change?
Mortgage rates fluctuate daily in response to market conditions. On any given day, rates could go up or down by a fraction of a percentage point.
Sometimes, rates change a lot. For example, the spike in inflation during 2022 prompted the Federal Reserve to increase its base interest rate seven times.
When the Fed increases its base rate, rates on almost all forms of borrowing follow suit. That includes credit cards, mortgages, auto loans, and personal loans. Someone who locked in their mortgage rate before one of the Fed’s rate increases would have kept the locked-in lower rate.
Mortgage rate lock FAQ
If your rate lock expires before closing, you’ll have to re-lock a rate to close the loan. If rates haven’t moved, your new rate will likely be the same rate you originally qualified for. If rates increased during the lock period, your rate will likely go up. But if rates have fallen, you will not get a lower rate. You’ll likely still get the original rate you locked in.
Yes, you can lock in a mortgage rate with more than one lender. Some borrowers decide to lock a rate with Lender 1 and let their rate float with Lender 2. That way, if rates fall, they have a backup. They can lock in a lower rate with Lender 2 and cancel their application with Lender 1 with fewer consequences.
Yes, you can change lenders after locking a rate. But you’ll have to start the application process over with your new lender. That means getting pre-approved, submitting all your documents, and waiting for underwriting — twice. All in all, closing a mortgage or refinance usually takes more than a month. It could take six weeks or even longer. So if you’re anywhere near the closing date on your original application, consider your options very carefully before deciding to change lenders.
Yes! You can negotiate mortgage rates with your lender. Many first-time homebuyers don’t know this. This is easiest to do when you’re in the shopping-around phase. You can get multiple rate quotes and sometimes use a lower rate as leverage with the lender you want. If you’ve already locked and rates fall, you might still have room for negotiation. Lenders invest time and money in setting up mortgage applications, and lose out if borrowers bail. So they may be willing to work with you. It’s worth asking.
You can back out of a mortgage rate lock, but there are consequences. Backing out of a rate lock means giving up the application you’ve put time and money into. You’ll have to start your mortgage application over from the start, and you’ll likely have to re-pay fees like the credit check and home appraisal. Plus, you could jeopardize your entire home buying process because your new loan application will likely delay the closing date listed in your contract. If you’ve already locked a rate and they fall, ask your lender about float-down options instead of backing out.
Yes. Locking in a rate protects your loan application from interest rate fluctuations, which happen all the time. It also allows your lender to finalize your loan. And, a locked-in rate lets you calculate your monthly payment before finalizing your loan. But before locking in your rate, ensure you understand your lender’s rules and fees.
No. Your locked-in rate applies to your loan’s specific details — including your loan amount — so you can’t change the loan amount after locking in. Check with your loan officer before locking in a rate if you anticipate making significant changes to your loan application.
Most lenders won’t charge you for locking in your rate because the cost is factored into your loan’s fees and interest. But if you need an unusually long rate lock period — 60 days, for example — your lender may charge an additional fee that’s included in closing costs. You may also pay additional costs for extending a rate lock. Most lenders measure this cost as a percentage of your loan amount (0.25% for example).
If interest rates go down after your rate lock, you are still committed to your initial, agreed-upon rate, unless your loan includes a float-down provision. You can cancel your loan application and find a lender that will give you the lower rate, but you are still responsible for financing your home purchase by the closing date.
Mondays are the best days to lock in rates at their lowest, while Wednesdays are generally disadvantageous. This is according to the mortgage data firm MBSQouteline.
Should I lock in my mortgage rate today?
Mortgage rates repeatedly set record lows in 2020 and 2021, falling into the low 2s for some lucky borrowers.
Rates have rebounded since then, but they’re still nowhere near the historic highs of the 1980s.
But if you’re still not comfortable locking in quite yet, there’s always the option of locking with a lender that offers a float-down provision as a safeguard.
Shop around and compare your options today.