The Flexible, Split Fee, Float Down Commitment
One of our clients called us recently and asked what we could do for a client who needed a little wiggle room to feel more comfortable taking down a long-term, float-down rate lock. He explained that with construction delays and supply chain issues, the timeline for the new home completion was not clear and likely would take the builder longer than normal. Also, the costs of construction had already gone up significantly during the planning stage and were likely to go up further during the building phase. Hence, he wanted to know if we could offer the float-down lock with an option to extend the duration and have a 20% cushion on the loan balance.
Our team evaluated the situation and came up with a solution for the borrower: a “Flexible, Split Fee, Float-Down Commitment”. Under normal float-down terms a .375-point fee would be paid by the borrower upfront for a fixed term, say 180 days, for a capped rate and price (e.g., 3.25% @ -1 points for a fixed, maximum dollar amount). Under the Flexible Split Fee Float Down Commitment, we were able to offer a 20% cushion to the loan amount so what normally would have been a $500,000 max loan amount for the commitment could grow to $600,000 if needed; also, the term of the float down could be extended by the borrower if the home was not going to be ready by day 180, for an additional 90 days for a .25-point fee paid prior to the expiration of the original term. Hence, the borrower received loan amount protection from rising construction costs, rising rates, and construction delays. A WIN – WIN – WIN Solution!
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