Float-Down Option.

In plain English

A float-down option is a feature you can add to a mortgage rate lock that gives you one chance to move to a lower rate if market rates fall before closing. A normal rate lock only protects you from rates going up; if rates drop, you are stuck. A float-down adds flexibility in the other direction, usually for a fee or a slightly higher starting rate. The terms vary by lender: there is often a minimum drop required before you can use it, and you typically can only exercise it once.

01Why it matters

If you lock weeks before closing and rates fall, a float-down can save you real money over the life of the loan instead of leaving you locked above the market. But you pay for that flexibility, so it only helps if rates actually drop enough to trigger it.

02The math, step by step

You lock at 6.75 percent with a float-down option that costs $500 and requires at least a 0.25 percent drop. Before closing, rates fall to 6.25 percent, you exercise the float-down, and you close at 6.25 percent. On a $300,000 loan that lower rate trims your payment for the entire 30-year term.

03What this is NOT

04Receipts

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