When you lock in your mortgage rate, it’s guaranteed for a certain period of time, usually between 30 and 60 days. But if you’re applying with a mortgage lender that offers a float-down option, that could change.

With a float down, you can reduce your locked-in rate if market rates drop before your loan is finalized. This can save you money on your monthly mortgage payment and reduce your long-term interest costs.

But mortgage float downs aren’t for everyone — nor does every lender offer them. Here’s what to know about these financial tools and how to use them.

Learn more: 5 strategies to get the lowest mortgage rates

In this article:

• What is a mortgage float-down option?

• Mortgage float-down costs

• Is a mortgage rate float down worth it?

• FAQs

What is a mortgage float-down option?

A mortgage float down is an option offered by some mortgage lenders. It locks your interest rate for a certain period of time but includes the choice to “float down” that rate if the lender’s mortgage rates fall before that time expires.

Here’s how a mortgage rate float down works:

1. You lock your initial mortgage rate. This rate is guaranteed for a certain period of time before you close on the house.

2. If market rates fall before your mortgage rate lock expires, you can request a float down from your lender.

3. You pay a float-down fee, and the lender adjusts your rate downward accordingly.

Your home loan proceeds forward as planned, except now you have a lower rate.

Read more: When will mortgage rates go down? A look at 2024 and 2025.

Mortgage float-down costs

Since float downs help you pay less in mortgage interest — and cost the lender money — they don’t typically come for free. The exact fee you’ll pay varies by the mortgage company, though it’s usually a percentage of the loan amount (often between 0.50% and 1%).

There may also be limitations. For instance, you may need to float your rate down within a specific timeframe or use a certain mortgage loan type to qualify.

Note: Shopping for mortgage lenders with mortgage rate float-down options? Read Yahoo Finance’s Navy Federal Credit Union review and Newrez mortgage review.

Is a mortgage rate float down worth it?

To determine if a mortgage interest rate float down is worth it, you’ll need to know how much the float-down fee is and how much the rate reduction would save you. Essentially, you want to ensure that the savings will outweigh the cost — and that you’ll live in the house long enough to reap those savings.

For example, let’s say you apply for a 30-year, $300,000 mortgage with a lock-in rate of 6.5%. Before you close, you have the opportunity to float down your rate to 6% for a fee of 1% of the loan amount ($3,000). See how the numbers flesh out below for monthly payments toward your principal and interest:

You’d then divide $3,000 (the cost of the float down) by $97 (the monthly savings) to get 30.9 — the month in which you’ll break even on your costs. This is also called the break-even point. As long as you’ll be in the home for at least 30.9 months (a little over two-and-a-half years), the float down likely makes sense financially.

Learn more: What determines mortgage rates?

Mortgage float-down option FAQs

What is a float down in a mortgage?

A float down is an option you might receive when locking in your mortgage rate. Even if you’ve already locked in your rate, the mortgage lender allows you to take advantage of lower interest rates if market rates fall before your loan closes. It usually comes with a fee.

How much does it cost to float down a mortgage rate?

It depends on the lender, but to float down your mortgage rate, you usually pay a percentage of the loan amount — often between 0.50% and 1%.

What happens if I lock in a mortgage rate and rates go down?

If you’ve already locked your mortgage rate and market rates fall, you may still be able to reduce it. This would be an option if your lender offers a mortgage rate float down, which typically comes with a fee.

Are mortgage rates going down?

Mortgage rates are always fluctuating, and they depend on many economic and personal factors. They have been inching down recently, but they probably won't drastically decrease until later in 2024 and into 2025. For a general idea of where mortgage rates are headed, look to forecasts from the Mortgage Bankers Association and Fannie Mae, which publish housing forecasts monthly.

This article was edited by Laura Grace Tarpley