3 Options if Interest Rates Lower After You Get a Mortgage

When choosing a mortgage, most buyers want to get the lowest interest rate possible. But what happens if interest rates change after you have already purchased a mortgage loan? Are you just out of luck? You may have several options no matter whether your mortgage is still new or you've had it for a while. Here are three of these options. 

1. Check for a Float Down Option

Fixed-rate loans are popular because they insure against your monthly payment going up when interest rates rise. But the downside of this is that if rates go down — as they may do during a recession when fewer people seek out a loan — your rate isn't automatically adjusted downward. 

However, some lenders offer a compromise known as a float down option. This is typically the ability to request a one-time reduction in your interest rate. The rest of the mortgage stays as it is, but you benefit over the long term by that rate reduction. You generally can't ask for this more than once, so you should be sure you will gain significant savings. 

2. Refinance the Loan

The most common way to take advantage of lower interest rates is to refinance the mortgage. Refinancing is the process of shopping for and qualifying for a new mortgage loan with more favorable terms (usually a lower interest rate). After getting the new loan, you use the proceeds to pay off the old mortgage and close it out.

If your lender or your loan doesn't offer any ways to lower your rate within the structure of the existing loan, refinancing allows you to find a new loan and start over. A good refinance has many upsides beyond just a lower interest rate. You may also be able to get a different length of years, remove mandatory mortgage insurance, or change the responsible parties on the loan. 

The downside of refinancing is that it will cost money to close the new loan. Borrowers need to factor in new closing costs when deciding whether the new interest rate is sufficiently low to warrant the effort. A positive net change may occur with as little as .5% rate reduction, but borrowers often need at least 1% to break even. You will also pay more interest at the start of the new loan — just as you did with the old loan. 

3. Ask About Loan Modifications

Loan modifications become widely known during recent recessions as the U.S. government sought ways to enable distressed mortgage holders to keep their homes. But a loan modification is something you may be able to obtain even during better overall economic times. With this tool, the lender can agree to change the terms of a loan to reduce the likelihood that the borrower will default. 

Generally, a borrower must be unable to qualify for a refinance of their loan in order to get a modification. This may happen, for instance, if your income has dropped and you can no longer qualify to get rate relief through a new mortgage. In this case, the lender may have their own modification programs or you may qualify for a government program. 

Where to Start

Want to know more about any of these tools for lowering your interest rate in the future? Start by consulting with a reputable lender that operates in your state.

Secure One Capital offers a variety of loan choices as well as refinancing options. Our lending pros will help you understand which options are open to you if you want to take advantage of a lower interest rate. Call today to speak with a member of our team.