Rate Float Down Option: Lock Your Rate and Still Get Lower if Rates Drop

A float down option lets you lock your mortgage rate while retaining the ability to get a lower rate if market rates drop before closing. It typically costs 0.25-0.5% of the loan amount (or is built into your rate) and requires rates to drop by at least 0.25% to trigger. Float downs protect you from rising rates while giving you a chance at falling rates—but they’re not free, so calculate whether the cost is worth the potential benefit.

How Float Down Works

The Basic Concept

Standard rate lock: Rate is fixed. If rates drop, you’re stuck.

Float down option: Rate is fixed, but if rates drop significantly, you can get the lower rate.

Two-Way Protection

Scenario	Standard Lock	Lock with Float Down
Rates rise	Protected	Protected
Rates stay same	Locked rate	Locked rate
Rates drop	Stuck with higher rate	Can get lower rate

Typical Requirements

Requirement	Common Terms
Minimum rate drop	0.25% to 0.50%
When to exercise	Before closing, within window
Cost	0.25-0.5% of loan or built into rate
One-time use	Usually can only float down once

Float Down Costs

Upfront Fee

Common structure:

• 0.25-0.5% of loan amount
• Paid at lock or closing
• Non-refundable if you don’t use it

Example:

• Loan amount: $400,000
• Float down fee: 0.375%
• Cost: $1,500

Built Into Rate

Alternative structure:

• No upfront fee
• Rate is slightly higher (0.125-0.25%)
• Cost embedded in the rate

Example:

• Market rate: 6.50%
• Your rate with float down: 6.625%
• Premium: 0.125%

Comparing the Two

Method	Upfront Cost	Rate Impact
Fee-based	$1,000-$2,000	None
Rate-based	None	+0.125-0.25%

When Float Down Makes Sense

Good Candidates

Rate expectations:

• Rates are volatile
• You think rates might drop
• But you also fear rates might rise

Timeline:

• Long time until closing (45-60+ days)
• New construction
• Complex transactions

Risk tolerance:

• Want downside protection
• Willing to pay for flexibility
• Peace of mind matters

Poor Candidates

Short timeline:

• Closing in 2-3 weeks
• Not enough time for significant rate movement

Rate trends:

• Rates clearly trending one direction
• Strong conviction about rate direction

Cost sensitivity:

• Every dollar matters
• Small rate differences don’t justify cost

Float Down Example

Scenario

Initial situation:

• Lock rate: 6.75%
• Float down cost: $1,200
• Lock period: 60 days

30 days later:

• Market rates drop to 6.25%
• You exercise float down
• Your new rate: 6.25%

Savings Calculation

$350,000 loan, 30 years:

Rate	Monthly Payment	Difference
6.75%	$2,270	-
6.25%	$2,155	-$115/month

Savings:

• Monthly: $115
• Over life of loan: $41,400
• Float down cost: $1,200
• Net benefit: $40,200

When It Doesn’t Pay Off

If rates don’t drop enough:

• Locked at 6.75%
• Rates only drop to 6.60%
• Minimum trigger not met (0.25%)
• You keep 6.75% rate
• Lost $1,200 on unused float down

Float Down Rules and Restrictions

Minimum Rate Drop

Most float downs require rates to drop by:

• 0.25% (25 basis points) minimum
• Some require 0.50%
• Check your specific terms

Example:

• Your locked rate: 6.50%
• Market rate: 6.35%
• Drop: 0.15%
• Not enough to trigger float down

Exercise Window

When you can use it:

• Before closing (varies by lender)
• Often must be 5-15 days before closing
• One-time use only
• Must request explicitly

What Rate You Get

Options vary:

• Current market rate at exercise
• Blend of locked and current rate
• Rate at exercise minus spread
• Check specific lender terms

Float Down vs Other Options

Float Down vs Standard Lock

Factor	Standard Lock	Float Down
Cost	Free	0.25-0.5%
Protection from increases	Yes	Yes
Benefit from decreases	No	Yes
Complexity	Simple	More complex

Float Down vs No Lock (Floating)

Factor	Float Down	No Lock
Rate protection	Yes	No
Benefit from drops	Yes (with limits)	Yes (fully)
Risk	Limited downside	Full exposure
Cost	Fee or rate premium	None

Float Down vs Renegotiating

Some lenders allow rate renegotiation:

• If rates drop significantly after lock
• No formal float down option
• At lender’s discretion
• May preserve relationship value

Ask your lender: “If rates drop significantly after I lock, what are my options?”

Getting a Float Down

Which Lenders Offer It

Common availability:

• Many large lenders
• Some regional banks
• Through mortgage brokers
• Ask specifically

May not offer:

• Some online lenders
• Discount lenders
• During rate spikes

How to Request

1. Ask about float down before locking
2. Understand the terms and cost
3. Decide if worth it for your situation
4. Include in lock agreement
5. Monitor rates during lock period

Questions to Ask

• What does the float down cost?
• What’s the minimum rate drop required?
• When can I exercise the option?
• What rate will I get if I exercise?
• Is there a deadline to exercise?
• Can I exercise it more than once?

Strategy Considerations

When to Exercise

Don’t exercise too early:

• Rates might drop more
• Once used, it’s gone
• Wait for significant drop

Don’t wait too long:

• May miss the exercise window
• Rates could bounce back
• Know your deadlines

Monitoring Rates

During your lock period:

• Check rates regularly
• Know when threshold is met
• Be ready to act
• Have lender’s contact ready

Making the Decision

Calculate break-even:

• Float down cost
• Monthly savings if used
• Months to recoup cost

Example:

• Cost: $1,200
• Monthly savings: $80
• Break-even: 15 months

If staying 15+ months, potential float down is worth considering.

New Construction Float Downs

Extended Lock Periods

New construction often requires:

• 6-12 month locks
• More rate uncertainty
• Higher likelihood of rate changes

Float Down Is More Valuable

Why it matters more:

• Longer time = more rate volatility
• More opportunity for drops
• Worth the cost often

Special Programs

Some builders offer:

• Free float down options
• Extended rate locks
• Builder-subsidized rate protection

Frequently Asked Questions

What is a float down option?

An addition to your rate lock that lets you get a lower rate if market rates drop before closing. You keep protection against rate increases while having a chance to benefit from decreases.

How much does float down cost?

Typically 0.25-0.5% of the loan amount as an upfront fee, or built into your rate as a 0.125-0.25% premium. On a $400,000 loan, that’s $1,000-$2,000.

What if rates don’t drop enough?

You keep your locked rate and lose the float down cost. Most require rates to drop at least 0.25% to trigger. If the drop is smaller, you can’t use it.

Can I float down more than once?

Usually no. Float down is typically a one-time option per lock. Once you exercise it, you have a new locked rate with no further float down available.

When should I exercise my float down?

When rates have dropped significantly and you don’t expect them to drop much more, or when you’re approaching the exercise deadline. Don’t wait until the last minute in case of processing delays.

Is float down worth the cost?

It depends on rate volatility and your timeline. For long closing periods (60+ days) during uncertain rate environments, it may be worth it. For short closings in stable rate environments, probably not.

Do all lenders offer float down?

No. It’s an optional feature that varies by lender. Ask specifically if this option is available before you lock.