Definition of Float Down:
Interest Rate Lock in Orange County, CA:
A float down option gives the borrower the ability to secure a lower interest rate with their lender, mortgage banker or broker if interest rates trend lower during the application process – assuming that the company did not rate-lock the loan. When a borrower decides with the mortgage company they are working with to locks an interest rate, a float down option allows him to take advantage of a lower interest rate if rates drop during the 10 – 30 days it normally takes to fund a purchase money first-mortgage.
Even without a float-down, a borrower trying to take advantage of a rate drop can always walk away from a locked loan before it funds but this is not encouraged as it likely involves talking to other lenders, delaying the closing and incurring new fees, so it may not be a realistic option. The float-down option allows the borrower to get the lower rate while staying with one lender and closing without delay. Lenders charge borrowers more for a loan with a float-down option, and usually only allow the borrower to re-set the price once. Mortgage Bankers who offer this float down will generally not be able to offer a client the best interest possible with this option because they were not able to lock the loan with the end investor.