Lock and Float: A Homebuying Tip That Saved Us Tens of Thousands
Welcome to Saving Money with Andrew!
After two years of rising interest rates, 30 year fixed mortgage rates have started falling (see below), dramatically changing home-buying economics. On a $500,000 mortgage, the recent rate decline (from ~7% to ~6%) implies >$300 lower monthly payment, or over $100,000 in savings over 30 years.
So, making sure your mortgage rate is as low as possible is a great way to save money. If you’re buying a home, you’ve likely gotten preapproval for a mortgage, and locked in an interest rate. Depending on the terms of your agreement with the bank, you may have the ability to “float” down your rate once before you close on a home for a fixed price.
In an environment in which rates are falling, this option can be extremely valuable.
A short story of our experience:
Almost four years ago, shortly after signing the contract to buy our first home, I noticed a “float down” option in the fine print of our rate lock agreement. At any time between signing our contract and closing (about 90 days around here), we could “float” our rate down to the current interest rate the bank was offering for a price of only 0.75 points (0.75% of the mortgage balance) for up to a 0.25% rate reduction.
During this 90 day period, I set a calendar reminder to check rates every day. A few weeks later, rates fell by a quarter-percent, and I immediately contacted our credit union and locked in a 0.25% rate reduction on our mortgage. The savings from the rate reduction will save us tens of thousands of dollars over the course of our mortgage, net of the cost of the buydown. Our loan officer was shocked that people don’t do this more often!
So, if you are in the market to buy a home, make sure to pay attention to this option. It could be an amazing money-saving opportunity. And if you have a high rate mortgage, keep an eye on rates to see if it might ever make sense to refinance in a lower rate environment.
And now, Andrew’s pick(s) of the week:
I am a big fan of Yo-Yo Ma’s Grammy-winning 1997 crossover album, Soul of the Tango (Spotify link), in particular the incredible first track, Libertango. If you enjoy classical music, you should really listen to it or watch the video of his terrific live performance with bandoneon virtuoso Nestor Marconi:
Also:
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