Ouch! You locked in your loan a few days ago and rates plummeted this week! You thought you had the market timed just right but after many sleepless nights deciding whether or not to lock you decided to go ahead and take the leap.

But you leaped wrong.

No one can predict the future of mortgage rates, there are simply too many factors. But there are a few things can do to "hedge" the future while you're pondering your payment fate.

Lenders and mortgage brokers typically don't automatically "lock" or guarantee your interest rate without your permission. Invariably, there are as many different lock-in requirements as there are lenders, so be sure you know the details of a lender or broker's rate lock policy.

So while you think you have an attractive rate from your chosen lender, you need to make certain that yes, you do want that rate, and yes, that rate is guaranteed you through the loan process up to and including your final funding date.

But what if you make a mistake? What if you locked and rates went down?

Remember, lenders take locks just as seriously as you do. Trust me, if rates were to go back after you locked in, don't expect a call from your lender wanting to know if you would like to forgo your low rate and accept the new, higher one. Many lenders offer a "float down" feature in their loan programs to help offset some of the market uncertainty.

A float down essentially says "yes, you are guaranteed a particular rate during your lock period, but if rates go down further after you locked, we will give you the lower rate." Not a bad deal, huh?

Really, it's not. It gives you, the homeowner, a little leverage. Lenders can have different float down policies just as they may have different lock policies, so make sure when interviewing lenders that you fully understand the float down policy along with the lock procedure.

Some lenders charge a float down fee, while others ask for an up-front payment if you want your lock to contain a float down policy. Make sure you weigh the benefits of the cost compared to how low your rate gets. Some lenders don't offer float downs when rates move down marginally, say just a few basis points (1/100th of a percent).

Sometimes the best float down policy may be no policy at all. Lenders and brokers don't really make anything until your loan closes, right? And up until that time, they've expended quite bit in personnel, marketing and associated overhead just to get your loan in a position to make some money. That can sometimes play in your favor. Most loan officers know that if their client locked in with them and rates dropped substantially, that client could very well walk away and go to another lender.

Sometimes that's all you need to do.

Call your loan officer and explain that since rates have gone down you're going to have to find another lender if they don't honor the new, lower rates. That's fair enough. Lenders also know that to keep a loan in such an instance they'll have to come at least partway on a deal.

They also know that if the borrower's closing is only a few days away they may be less likely to make concessions, as changing lenders mid-stream might jeopardize the entire transaction.

But if there's plenty of time to change lenders and still make the closing on time, by all means, ask for the lower rate. You might just get it without paying additional fees!

For more articles by David Reed, please press here.

Published: December 7, 2001

Use of this article without permission is a violation of federal copyright laws.

, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.