It’s the one worry most borrowers have – how do you know when to lock in the interest rate. What if rates drop after you already locked one in? What are you supposed to do? Should you wait to choose a rate?
At some point, you have to choose a rate. You cannot close on the loan until you have a rate locked in. Luckily, some lenders will give you the option to float down the rate. This is usually a one-time thing and not all lenders allow it. If you are nervous about locking in a rate that will just drop, make sure you shop around to find a lender that will allow a float down.
Locking in the Interest Rate
Before you can lock the rate, you’ll have to meet certain requirements:
- You must have a loan application with the lender and processed
- You must have a property chosen and have a contract on it
If you meet both of these criteria, you can lock in the rate as you see fit. Generally, you have to keep up with the rates by calling your loan officer and inquiring about rates. Some loan officers will call you if they see a drastic change in rates, but generally, it is up to you to keep up with them.
What Does a Rate Lock Do?
Once you lock in an interest rate, that’s your rate for the loan. Your mortgage documents will reflect this rate and it’s the rate you will pay for the remainder of the loan term. Something important to understand about the rate lock, though, is that once you lock a rate, you cannot change it.
If rates go up, you are in good hands because you have the lower rate. If rates go down, though, you are stuck with the rate you locked in; you cannot just ask for the lower rate. As you can see, it’s an important decision deciding when to lock the rate and when to float it. Most lenders offer rate locks between 30 and 60 days, but you may find some lenders that offer shorter and longer locks.
At the very least, you will need to do so at least five days before the closing so that the lender has time to prepare the documents.
How Does a Float Down Work?
If you want the option of a float down, you will have to pay for it. Typically, it is only a few hundred dollars, but the amount will vary by lender. The float down gives you the option to snag a lower rate if the rates decrease after you are already locked into a rate.
It may seem odd that lenders would offer you the option to lower your rate after you already locked one in, but it makes good business sense. If you are a ‘good’ borrower, meaning that you could probably go anywhere else and get another loan, the lender wants to keep your business. By offering you the option to float the rate down, they can keep your business at a lower rate, rather than losing it altogether.
Your VA loan lender will help you decide when it’s a good time to lock in your interest rate. Make sure you ask about the fine print, including if you’ll have the option to float the rate down if rates drop. If one lender won’t allow it, shop around with other lenders to find a willing lender. There are many VA lenders out there, you should have several options when it comes to finding a lender that will work with you and your need to have a low interest rate.