Can I unlock a mortgage if interest rates drop? Two strategies

What happens if you lock in a mortgage and then rates go down?

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. 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.

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Can you unlock a mortgage rate?

A mortgage rate lock is a commitment between you and your lender. As long as your home loan closes by the agreed-upon 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 goes 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

There are usually just two ways you could potentially get a lower rate after locking.

1. Ask your lender about a “float down option.” You pay an additional cost at closing in return for getting lower current market rates
2. Cancel your loan application and switch lenders. You abandon your current lender and start over with one that can offer you a lower rate

There are huge benefits and risks to both of these strategies. You’re either facing 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 big 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 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.

Float-down rules

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 3.75%. Then you see rates plummeting 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:

Loan Amount	$300,000
Locked Rate	3.75%
Float Down Fee	0.5% ($1,500)		1.0% ($3,000)
New Rate	3.70%	3.50%	3.70%	3.50%
Interest Savings (30 Years)	$3,000	$15,200	$3,000	$15,200
Worth It?	Yes	Yes	No	Yes

Keep in mind that most people don’t keep a mortgage for 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 seven years instead of 30:

Loan Amount	$300,000
Locked Rate	3.75%
Float Down Fee	0.5% ($1,500)		1.0% ($3,000)
New Rate	3.70%	3.50%	3.70%	3.50%
Interest Savings (7 Years)	$1,030	$5,100	$1,030	$5,100
Worth It?	No	Yes	No	Yes

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 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 $15,000 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 can 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.

We do not recommend canceling your loan application if you’re buying a house and closing soon (within a month). Instead, this strategy generally works better for refinancing. 

“You may be better off applying with two brokers at the same time. If one has a better rate, then the other is just to see if you can get underwriting done faster if needed,” notes Meyer.

The drawbacks to switching lenders are especially dangerous for home buyers. The stakes are lower for refinancers, but they should still understand the process:

• Down payment: 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 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 a great one unless you’re between a rock and a hard place — locked in with a lender that has high rates and no float down option.

Of course, 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 0.5-1 percent 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 you to extend your lock if interest rates have risen.

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.

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 3.5% for a 30-year fixed-rate mortgage — meaning your lender guarantees you’ll pay 3.5% interest for the whole loan term, and it won’t raise or lower your rate unless you refinance.

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 just better to be able 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 government-backed and conventional loans alike.

Government-backed 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 so you can avoid any possible rate increases in the days leading up to loan approval and closing.

Mortgage rate lock FAQ

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 low. Today’s borrowers can find cheaper home financing than almost all borrowers in U.S. history (really, that’s not an exaggeration).

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.