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

A rate lock and a float-down are two options that homeowners in Virginia have when obtaining a mortgage loan. A rate lock is a promise from the lender to provide a borrower with a specified interest rate if the loan closes within a predetermined time period. This rate is locked in, meaning that the borrower will not have to pay a higher rate if the market rate increases between when they applied for the loan and when the loan closes. A float-down is an option that provides borrowers with the chance to secure a lower rate than the original rate lock agreement. With a float-down, borrowers can lock in a lower rate if the market rate decreases between the time of the loan application and the loan closing. However, this option also carries a certain amount of risk -- if the rate goes back up again after the borrower has agreed to a float-down, the borrower must still pay the lower rate that was agreed upon. In summary, rate locks are used to provide borrowers with a guarantee that they will get the rate that was agreed upon at the time of the loan application, while a float-down provides borrowers with the option to secure a lower rate if the market rate drops.

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

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