Float down my mortgage rate now or wait?

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Topic Author
techlion
Posts: 30
Joined: Wed Jul 22, 2015 6:52 pm

Float down my mortgage rate now or wait?

Post by techlion » Fri Feb 01, 2019 11:48 am

Hey all,

I purchased a new construction home with a closing date in mid March. I locked down a 4.25 rate on a 30-year jumbo mortgage with the option to do a one time rate float down if rates decline.

I have the option to execute my float down now to 4%. If I do that, I can not float down anymore and I'm locked at 4%.

Or I can wait to see if rates will drop even further.

I know nobody can predict the future, but I'm wondering what Bogleheads would do in this situation? Float now or wait?

daheld
Posts: 697
Joined: Wed Sep 13, 2017 8:14 am
Location: Midwest US

Re: Float down my mortgage rate now or wait?

Post by daheld » Fri Feb 01, 2019 12:04 pm

techlion wrote:
Fri Feb 01, 2019 11:48 am
Hey all,

I purchased a new construction home with a closing date in mid March. I locked down a 4.25 rate on a 30-year jumbo mortgage with the option to do a one time rate float down if rates decline.

I have the option to execute my float down now to 4%. If I do that, I can not float down anymore and I'm locked at 4%.

Or I can wait to see if rates will drop even further.

I know nobody can predict the future, but I'm wondering what Bogleheads would do in this situation? Float now or wait?
First, I'd not lose a wink of sleep over it. Yes, it matters, but it'll be what it'll be and none of us can control interest rates. What you can control is the payoff of the loan, and if you pay ahead over the life of the loan, that can more than make up the difference of being locked in to a slightly higher than you'd prefer interest rate. Historically, rates are still very low even at 4.25%.

As to your specific question, I'd lock it in at 4% and not think about it again.

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dunkmachine
Posts: 41
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Re: Float down my mortgage rate now or wait?

Post by dunkmachine » Fri Feb 01, 2019 12:07 pm

Interesting concept, I have not heard about a float down mortgage rate.

Just curious, did the lender charge you points for this option? Have you calculated the break-even for the cost of the rate lock vs. the difference in interest payments from 4.2 to 4%? I don't know what direction mortgage rates are moving, but it seems like 4% is too a good rate to not lock in right now. The banks around my area at offering 4.5-4.75% for 30 year. I'm mostly commenting on this so that I can back to see the responses. I'm looking for a construction loan for a custom build late this year.

In my analysis to figure if I wanted to buy points, I've done some NPV calculations with varying discount rates to see if it was worth paying points. I couldn't ever make it worth it. I hadn't considered it with a rate lock, but depending on the costs it may be worth it. But I'm assuming the bank is smarter than me and have already figured all that in the fees.

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RickBoglehead
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Re: Float down my mortgage rate now or wait?

Post by RickBoglehead » Fri Feb 01, 2019 12:14 pm

I would lock at 4% now.
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Topic Author
techlion
Posts: 30
Joined: Wed Jul 22, 2015 6:52 pm

Re: Float down my mortgage rate now or wait?

Post by techlion » Fri Feb 01, 2019 12:20 pm

dunkmachine wrote:
Fri Feb 01, 2019 12:07 pm
Interesting concept, I have not heard about a float down mortgage rate.

Just curious, did the lender charge you points for this option? Have you calculated the break-even for the cost of the rate lock vs. the difference in interest payments from 4.2 to 4%? I don't know what direction mortgage rates are moving, but it seems like 4% is too a good rate to not lock in right now. The banks around my area at offering 4.5-4.75% for 30 year. I'm mostly commenting on this so that I can back to see the responses. I'm looking for a construction loan for a custom build late this year.

In my analysis to figure if I wanted to buy points, I've done some NPV calculations with varying discount rates to see if it was worth paying points. I couldn't ever make it worth it. I hadn't considered it with a rate lock, but depending on the costs it may be worth it. But I'm assuming the bank is smarter than me and have already figured all that in the fees.
No cost to exercise the float down (0 points). I've seen that jumbo rates are lower than conventional rates.

Topic Author
techlion
Posts: 30
Joined: Wed Jul 22, 2015 6:52 pm

Re: Float down my mortgage rate now or wait?

Post by techlion » Fri Feb 01, 2019 12:23 pm

daheld wrote:
Fri Feb 01, 2019 12:04 pm
techlion wrote:
Fri Feb 01, 2019 11:48 am
Hey all,

I purchased a new construction home with a closing date in mid March. I locked down a 4.25 rate on a 30-year jumbo mortgage with the option to do a one time rate float down if rates decline.

I have the option to execute my float down now to 4%. If I do that, I can not float down anymore and I'm locked at 4%.

Or I can wait to see if rates will drop even further.

I know nobody can predict the future, but I'm wondering what Bogleheads would do in this situation? Float now or wait?
First, I'd not lose a wink of sleep over it. Yes, it matters, but it'll be what it'll be and none of us can control interest rates. What you can control is the payoff of the loan, and if you pay ahead over the life of the loan, that can more than make up the difference of being locked in to a slightly higher than you'd prefer interest rate. Historically, rates are still very low even at 4.25%.

As to your specific question, I'd lock it in at 4% and not think about it again.
Thanks, that's what I'm leaning towards.

chw
Posts: 709
Joined: Thu May 24, 2012 4:22 pm

Re: Float down my mortgage rate now or wait?

Post by chw » Fri Feb 01, 2019 2:24 pm

If I was able to pick up a 25 bps float down, I would jump on it. It's a meaningful reduction, and it's really a gamble to know what direction rates will take in the near future. Just my opinion (retired mortgage banker).

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