Whether you are a first-time homebuyer looking for a home or a seasoned home-buying veteran, you probably know how important it is to get the best mortgage possible, and much of that importance is placed upon the interest rate associated with the loan. Mortgage lenders compete with one another for your business and one of the primary ways they do so is to be competitive in both terms of rate as well as service and deliverability. But rates are an important factor. There is no shortage of information available about mortgage rates in general, how they act and what makes them move up, down or stay the same. So how do you know when to lock in your mortgage rate?
When To Lock In Your Mortgage Rate: The Basics
How Rates Are Set
Each day, mortgage companies prepare their interest rates for all the loan program offerings and they all set their rates based upon the same general suite of indexes. For example, a typical conforming conventional loan is set upon the current price of the appropriate mortgage bond, in this instance the FNMA 3.0 30 yr. But this rate is dynamic and can change from day to day or even throughout the course of a single business day in times of relatively volatility. Rates don’t stay the same until you tell your loan officer to lock it in. Sometimes however, consumers try to outguess the market and hold on as long as possible before locking in a rate, and that can be a mistake. So should you lock in your mortgage rate today? Consider all the factors first.
How the Economy Affects Mortgage Rates
When considering when you lock in your mortgage rate, you also need to be aware of how the economy affects mortgage rates. Seasoned loan officers will tell you first-hand how rates react to market conditions. When economic news is released that indicates a slowing economy, investors can attempt to protect their portfolio by moving away from stocks and placing money into bonds and the FNMA 3.0 30 yr is one of those bonds available. When there is more demand for a flight to safety, the price of the bond goes up, which results in yields (read: rates) moving lower. The opposite occurs when brighter economic news is released and the stock market begins to sizzle. Bonds provide safety but do not provide much in the result of returns. So, in general, the following is true:
Good economy = higher rates
Bad economy = lower rates.
How to Lock in Mortgage Your Mortgage Rate and Time
Rates are also set by how long the rate is guaranteed, or locked for. A 60 day lock will mean slightly higher rates compared to a 10 or 15 day lock. When you call up your loan officer and ask about rates you might also be asked how long you’d like the rate to be good for. With a typical purchase transaction, this is usually a 30 day quote. Yet consumers might think that rates are moving lower based upon recent economic data or reading a column from a so-called “financial analyst.” Yes, the shorter lock period the better the deal, but the difference between at 15 and a 30 day rate is marginal. And yes, your goal is to get the best deal possible, but there is a flip-side to this strategy: rates can also move up instead of down while you’re waiting. By waiting, you run the risk of paying for that gamble over the course of the term of the loan each month. Worse, rates could go up to a point where your payments are too high. So much so that someone could no longer qualify for a refinance that once made sense no longer does.
If you are deciding when to lock in your mortgage rate, consider all of the factors above. Once you decide on your mortgage rate, it will be with you until or unless you can refinance to a lower interest rate, so choose your rate and lock in carefully. To see what rates are available now and to get more information, schedule a consultation.