When talking to your mortgage broker ask about how to get best rates before your closing date. Each lender policy may differ and it is important to know what you can expect so you don’t get caught short.
When you are approved for your mortgage at a specific rate if the rates drop before your closing date you are typically entitled to a drop to the new lower rate. However, there can be a difference in how this is managed by each lender. Some lenders allow:
· one rate drop while others allow more.
· rate reductions up to seven days before you close while others allow a rate drop up until your closing date.
· automatic lowering while others require your mortgage broker to manually request the rate adjustment..
The devils in the details
As you review your financing needs with your mortgage broker if you are especially rate sensitive ask about how to get best rates before your closing date. There are some specific policies that may make a difference in which lender you choose.
In a few cases lenders will use a “look-back” policy where they look back and give you their lowest rate from the time you applied until the time you closed.
More and more lenders are adding “no-float-down” clauses to their fixed mortgage rates. This policy comes into effect if the lender has a better rate deal after you applied and they will not allow you to access the new rate- it is for new business only.
Why would a lender offer this option to new business only? If rates drop and the lender didn’t have a “no float-down” clause, it would incur the cost of the difference in the rate and have to give all of savings back to you. With strong competition on rates and less profit for lenders, some can’t afford to pass on the rate savings and so they implement this policy.
What matters when choosing a lender and a rate?
If fixed rates are rising “no-float-down” policies shouldn’t impact you. If they are dropping it pays to have a rate-drop option.
There are many other things to consider than a rate drop when choosing a mortgage. Some lenders offer a lower rate at the time of application so a rate drop by another lender may still not be a better offer. All mortgages have some different features such as pre-payment options and payment frequency or online services or other products such as access to a line of credit which may be of benefit to you and impact your decision in choosing a lender. Working through all your options with your mortgage broker can help you make an informed decision.