Locking into a falling market without losing the float-down

Every week that pricing improves, I get the same call. The rate is better than it was when I locked. Can I have the new one? The answer is usually yes, sometimes, at a price, and only if you act inside a window that nobody told you about.

A rate lock is a contract. The wholesale lender has committed to deliver a specific rate on a specific loan by a specific date, and they have hedged that commitment in the secondary market. When the market moves in your favour, their hedge loses money. A float-down is the mechanism that lets you capture some of that improvement, and it exists because lenders would rather pay a little to keep your loan than lose it to a competitor.

What triggers a float-down

Most wholesale desks I work with structure it the same way. There is a threshold, usually a base-rate improvement of 0.250% or better measured from your locked rate. There is a fee, typically around 0.125 points added at exercise. There is a limit of one per loan. And there is a deadline, normally seven days before closing and after the file has left underwriting.

That last condition is the one that catches people. A borrower who locks on day one, watches the market improve on day eight and calls me on day nine cannot exercise yet, because the file is still in underwriting. By the time they can, the improvement may have gone. That is not a trick; it is how the desk protects itself from borrowers exercising on noise.

Why you should not simply wait to lock

The other half of the inbox asks the opposite question. If rates are falling, why lock at all? Because a lock is insurance, not a prediction, and because the downside is asymmetric. If you float and the market improves a quarter point, you save about $55 a month on a $340,000 loan. If you float and the market worsens three quarters of a point, your payment rises $170 and your debt-to-income ratio may no longer qualify. One of those outcomes is an inconvenience. The other one ends your purchase.

I put it to clients this way. If a half-point move against you would mean you could not buy the house, lock. If a half-point move against you would mean you are mildly annoyed, you have the luxury of floating. Almost nobody in the first group should be floating, and almost everybody in it wants to.

What a blown lock actually costs

Lock expiry is the expensive mistake, and it is entirely avoidable. When a lock expires, the lender re-prices at the worse of your original lock price or current market. You never capture an improvement that happened while you were expired. You only capture deterioration.

Extensions run roughly 0.03 points per day, billed in blocks, cumulative, and usually capped at thirty days before the file must be re-locked outright. Seven days on a $340,000 loan is about $714. A 45-day lock instead of a 30-day lock would have cost $425 in the first place. The cheap decision at the start is frequently the expensive one at the end.

The practical checklist

• Ask for the lock expiry date in writing on the day you lock, and put it in your calendar
• Ask whether the desk offers a float-down, what the threshold is, what it costs and when the window closes
• Choose the lock term against the real settlement date plus a margin, not the optimistic one
• Do not open new credit, change jobs or move money around while locked
• If pricing improves materially, call and ask; the worst outcome is that the answer is no

A lock is insurance against the version of the market that ends your purchase, not a bet on the version that improves it.

None of this requires predicting anything. It requires knowing your own numbers: what payment breaks the deal, how long the file realistically takes, and what the desk's float-down rules are. Those three facts decide the lock, and they are all knowable on day one.

If you are locked somewhere else and unsure whether your lender offers a float-down, send me the lock confirmation. I will read it and tell you what it says, whether or not the loan is mine.