How Do I Know if I Should Lock in My Mortgage Rate Today?
When you’re first considering applying for a home loan, whether to refinance or to purchase a home, you discover that interest rates for mortgages are a moving target. Mortgage companies set rates each day and rates change often, especially during volatile times. Though it doesn’t happen often, rates can even change during the course of a single business day. As mortgage rates change over time you might ask yourself: Should I lock in my mortgage rate today or see if I can get a better rate later?
How Do Interest Rates Affect Mortgage Rates?
Let’s be clear: no one knows for certain what interest rates are going to do in the future. Experienced loan officers can tell you what makes interest rates move and how to anticipate those moves, but it’s impossible to know for certain. Economic news can move rates one way or the other. While most economic reports come in close to what was expected, even experts can be caught by surprise, which can change interest rates and mortgage rates unexpectedly.
For example, let’s say the unemployment rate is expected to be 4.50% and 100,000 new jobs are expected to be created. But the actual number is 4.25% and there are 300,000 new people on payroll. Such surprising news would shake the markets a bit and mortgage rates in this example would start to rise due to the expectations of an expanding economy. On the other hand, disappointing data can cause rates to fall. Political events both at home and abroad can also affect the general direction of rates. This is what makes market timing so difficult. Rates can change based on economic and political news, among other factors.
How Do Mortgage Rates Change When Purchasing?
Despite this uncertainty, there is a way to know whether you should lock in your mortgage rate today, or to wait until later. When you’re buying a home and your property is under contract, timing is more important than with refinancing, where you can wait longer. With a purchase contract, you must close within the stated escrow period, usually within 30 days. Rate locks are time sensitive, meaning the longer the rate lock period is the higher the rate will be. Conversely, the shorter the rate lock period, the lower the rate will be. Lenders will offer slightly better terms for a 10-day rate lock compared to a 30 or 45 day period, for example. This consideration can make a difference when applying for a mortgage. Before locking in your rate, make sure you know how to get the best interest rate on your purchase.
How Do Mortgage Rates Change When Refinancing?
When you apply for a refinance, you control when you lock in your rate. However, rates can go up just as they can go down. In fact, rates tend to move more swiftly up than down. For some people, it’s tempting to hold out and wait for rates to move just a little bit lower in order to get the absolute best rate possible. Yet you also risk the opposite happening. If you’ve already made the determination that refinancing your current loan makes sense, either by lowering your rate, changing your loan term or switching from an adjustable rate mortgage to a fixed rate, then you should lock your mortgage rate today. Otherwise, you risk losing the advantage of refinancing to a lower interest rate.
Should I Lock in My Mortgage Rate Before a Fed Meeting?
One of the more common misconceptions is how the Federal Reserve affects mortgage rates. Every six weeks or so the Federal Reserve Board meets and one of the topics is what to do about rates. Is it time to raise the Federal Funds rate to stave off any future inflation due to an improving economy? Maybe lower rates to give the economy a little nudge?
While no one knows what the Fed will do, markets have a pretty good idea based upon recent economic data. Still, you should wait to lock your rate if you’re two weeks or less away from a Fed meeting. If you can, wait until after the Fed meets and everyone exhales.
The Fed certainly has an impact on interest rates, but it’s more the expectation of what the Fed may do in the future and perhaps less so than what they did at their last round of meetings. If rates are good enough today that it makes sense to lock in, you should lock in your mortgage rate today.
It can be difficult to know if you should lock in your mortgage rate today or wait. Ask yourself the above questions and watch markets. The best way to get lock in an ideal rate is to speak with an expert. Contact us and get a rate quote today to learn more.