If Rate Go Down and Your Locked-In, Can You Get the Lower Rate?

Are You Protected if Your Mortgage Interest Rate is Locked and Rates Go Up?
July 27, 2020
Do I need Flood Insurance?
August 10, 2020

If Rate Go Down and Your Locked-In, Can You Get the Lower Rate?

Did you know that interest rates are at a historical low right now? That’s why many people going through the process of getting a loan are anxious to lock their rate. A locked interest rate with your mortgage lender allows you to secure an interest rate for a specified amount of time and cost. It commits your lender to honor that rate at closing, as long as it occurs before the lock expiration date. It also means that you are committed to using that lender to close the loan. Borrowers can cancel a loan for a few valid reasons (like getting laid-off). However, a borrower generally can’t, or shouldn’t, cancel a rate that is locked.

Why Are Rates So Low Right Now?

Mortgage rates are tied to bonds backed by U.S. mortgages. Investors consider these bonds safer than stocks when something like COVID causes economic uncertainty. Interest rates drop when investors buy bonds in times of uncertainty, and this is why we have record-low mortgage rates right now.

Earlier this year, Goldman Sachs predicted that U.S. economic growth (measured by GDP) would shrink by about one full percentage point from Q4 2019 to Q4 2020. They broke down their 2020 GDP estimates as follows:

– U.S. GDP growth Q1 2020: 0.9%

– U.S. GDP growth Q2 2020: 0.0%

– U.S. GDP growth Q3 2020: 1.0%

– U.S. GDP growth Q4 2020: 2.25%

What if Rates Goes Down While Your Rate is Locked?

Perhaps you locked a rate, and you’re still in the process of getting your loan, but now interest rates are even lower. What do you do? Most lenders can lower your locked rate a bit, called a floatdown, rolldown, or renegotiation. Typically, you’ll get about half the market improvement since you locked your rate.

For example, if you locked a rate of 3.625% rate and rates dropped to 3.25% rate, you’ll likely end up with a rate of around 3.4%. Some people might be tempted just to cancel the loan and start over with a different lender who will lock you with today’s rate. However, if you’ve already paid for an appraisal or other fees, you’ll have to forfeit those funds. Most lenders won’t take another lender’s appraisal, so you’ll have to pay for a new appraisal and a whole new set of fees. The best thing you can do is talk it through with your existing lender. They’ll do the math for you and try their best to find a solution that serves your goals.

The bottom line is this. If you pass on a 30-year fixed in the low 3% or high 2% range, you’re very likely going to regret it. It is still an AMAZING rate! Primary Residential Mortgage is available to answer all of your home loan questions and walk you through the home loan process. Give one of our helpful mortgage brokers a call today.