How to Explain Rate Lock vs Float to Borrowers

The lock vs. float decision can stress out clients. Here's how to explain it clearly and help them choose confidently.

The Basic Explanation Script

"Locking your rate means we guarantee today's rate until you close—even if rates go up tomorrow. Floating means we wait and hope rates drop before closing. It's basically a choice between certainty and possibility."

The Lock vs. Float Conversation

Opening the Discussion

"We're at the point where we need to decide: do you want to lock in today's rate, or float and see if we can get better terms before closing?"

Explaining the Trade-Off

"Here's the deal:

If you lock:

• ✅ Your rate is guaranteed
• ✅ You know exactly what your payment will be
• ❌ If rates drop, you're stuck (usually)

If you float:

• ✅ You could get a lower rate if the market moves down
• ❌ If rates go up, your payment goes up too
• ❌ More uncertainty until closing"*

When to Recommend Locking

The "Lock Now" Script

"Based on what I'm seeing in the market right now, I'd recommend locking. Here's why:

1. Rates have been volatile—they moved [X] basis points just this week
2. We have enough time in your lock period to close comfortably
3. A bird in the hand is worth two in the bush

The peace of mind alone is worth it. You can focus on the move instead of watching rate charts."

Lock When:

• ✅ Rates are historically favorable
• ✅ Client is risk-averse
• ✅ Closing is within 30-45 days
• ✅ Market is volatile

When to Consider Floating

The "Float" Script

"In your situation, floating might make sense because:

1. [Economic indicator] suggests rates might dip
2. You have flexibility on your closing date
3. We can add a float-down option for protection

But I want to be clear: this is a gamble. If rates go up instead of down, your payment could increase by $[X]/month."

Float When:

• ✅ Strong indication rates will drop (Fed announcement, etc.)
• ✅ Client has flexible closing timeline
• ✅ Float-down option is available
• ✅ Client understands and accepts the risk

Explaining Float-Down Options

The Float-Down Script

"There's a middle-ground option called a 'float-down.' Here's how it works:

You lock your rate today at 7%. But if rates drop below 6.75% before closing, you can 'float down' to the lower rate.

The catch? It costs about 0.25% of your loan amount upfront—that's $1,000 on a $400,000 loan.

So you're paying $1,000 for rate protection. Worth it if rates drop significantly; wasted if they stay flat or go up."

Float-Down Decision Matrix

Scenario	Rate Drops 0.5%	Rates Flat	Rates Rise 0.5%
Locked (no float-down)	😐 Stuck at higher rate	😊 Safe	😊 Protected
Floating	😊 Win!	😐 Same	😱 Lose
Lock + Float-Down	😊 Win!	😐 Paid $1K for nothing	😊 Protected

Handling Client Anxiety

"I don't want to make the wrong decision."

"I totally understand. Here's how I think about it: if you lock and rates drop, you might leave some money on the table—but you'll still have the home you want at a payment you can afford. If you float and rates rise, you could price yourself out entirely. One risk is regret; the other is losing the home."

"What would you do?"

"Honestly? I'm risk-averse—I'd lock. The rate we have today is good, and markets are unpredictable. But everyone's comfort level is different. Let me show you the numbers both ways so you can decide."

"Can I change my mind after locking?"

"Usually no—a lock is a commitment. That's why we want to make sure you're comfortable before we pull the trigger. Some lenders offer one-time float-down options, but not all. Let me check what's available for your loan."

Visual: Lock vs. Float Risk

RATE MOVEMENT SCENARIOS
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━
If you LOCK at 7.0%:
  Rates ↑ to 7.5%  →  You pay 7.0% ✅ Protected
  Rates → stay 7%  →  You pay 7.0% ✅ No change  
  Rates ↓ to 6.5%  →  You pay 7.0% 😐 Missed savings

If you FLOAT:
  Rates ↑ to 7.5%  →  You pay 7.5% 😱 Lost $$$
  Rates → stay 7%  →  You pay 7.0% ✅ No change
  Rates ↓ to 6.5%  →  You pay 6.5% 😊 Saved $$$
━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━

Closing the Conversation

"Let's do this: I'll pull up our Lock vs Float Calculator and show you exactly what the numbers look like in both scenarios. Then you can make an informed decision. Sound good?"

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