When securing a mortgage, buyers aim to lock in the best possible interest rate. But what if interest rates fall after you’ve closed on your loan? Are you stuck with your current rate? The good news is that you may have options, whether your loan is brand-new or you’ve been paying it off for a while. Here are three ways to take advantage of lower rates.
1. Explore a Float Down Option
Many borrowers choose fixed-rate loans for stability—they protect you from rising rates. However, if rates drop, your fixed rate stays the same.
This is where a float down option can help. Some lenders offer this as a one-time opportunity to reduce your interest rate without refinancing. While the rest of your loan terms remain the same, the lower rate could save you money over time.
Because this option can only be used once, timing is crucial. Be sure the potential savings justify the decision, and consider working with your lender to understand the terms and conditions before proceeding.
2. Refinance Your Mortgage
Refinancing is the most common way to capitalize on lower interest rates. This involves replacing your current loan with a new one at a better rate. The new loan pays off your old mortgage, and you start with fresh terms.
Refinancing offers more than just interest rate savings. You could:
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Adjust the loan term to pay off the mortgage faster or reduce monthly payments.
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Remove private mortgage insurance (PMI) if you’ve built sufficient equity.
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Change borrowers on the loan if needed.
However, refinancing isn’t without costs. You’ll need to cover new closing fees, which could offset your savings if the rate drop is minor. Generally, a reduction of at least 0.5% to 1% is necessary to break even on the costs and start saving. Additionally, refinancing restarts the amortization schedule, meaning you’ll pay more interest upfront in the new loan’s early years.
3. Inquire About Loan Modifications
Loan modifications are another option to lower your interest rate. These programs are typically offered to borrowers facing financial challenges, such as a reduction in income or an inability to qualify for refinancing.
With a loan modification, the lender agrees to adjust the loan’s terms—such as lowering the interest rate or extending the repayment period—to reduce the risk of default. While these programs gained attention during past recessions, they may still be available even in stable economic conditions.
If you think a loan modification might work for you, contact your lender to discuss their specific requirements. Some programs are also supported by government initiatives to help homeowners remain in their properties.
Where to Start
If interest rates fall after you’ve secured a mortgage, you don’t have to feel stuck. Whether it’s exploring a float down option, refinancing, or pursuing a loan modification, there are ways to reduce your rate and save money.
Give us a call. We can review your current loan, discuss potential options, and guide you toward the best decision for your financial situation. With the right plan, you can make the most of favorable rate changes and keep your financial goals on track.
