What is the difference between a rate lock and a float-down?

A rate lock is a guarantee provided by a lender that a borrower’s interest rate will remain the same, despite market fluctuations. This guarantee is set for a specified time period, at the end of which the rate may need to be adjusted. A float-down allows the borrower to take advantage of market fluctuations if they occur during the rate lock period. If the interest rate decreases, the borrower can “float down” the rate to the lower rate. This type of protection is only available with certain lenders and may come with an additional fee. In California, the law requires lenders to disclose the details of a rate lock, including the cost and any possible fees. Additionally, all rate locks must be in writing, and must specify the exact rate and term. The rate lock must also include a definite “lock-in date,” or the rate-lock period. This date must be at least 3 days after the rate is locked. Once the rate is locked, the interest rate and the loan terms can only be adjusted by the lender with the borrower’s written consent. The main difference between a rate lock and a float-down is that a rate lock guarantees that a borrower’s interest rate will remain the same, while a float-down allows the borrower to take advantage of market fluctuations. The law in California requires lenders to provide detailed information regarding rate locks and to put rate locks in writing. This ensures that borrowers are fully informed of their agreement and protected from any unexpected changes in the terms of their mortgage.

Related FAQs

What is a home equity loan?
What are the eligibility requirements for a mortgage?
How does a lender decide whether to approve my mortgage application?
What is interest rate?
What are the benefits of an assumable mortgage?
What is a mortgage discount point?
How does my credit score affect the mortgage interest rate I qualify for?
What is an escrow account?
What is an assumable mortgage?
What is title insurance?

What is the difference between a rate lock and a float-down?

Related FAQs

Related Blog Posts