Should I lock in my interest rate?
I don't think anyone could have predicted that interest rates would continue to decline to their current levels. Every day we hear about rates being at historic lows. We are seeing 30 year fixed rate mortgages in the 3-4% range and the 15 year rates as low as 2.75%. (APR’s and interest rates vary widely by loan program, lender, closing costs, credit scores, loan to value, etc. Please be sure to speak to a lending professional about your specifics before comparing interest rates!
The media pundits are all over the map when talking about interest rates...NO way they can go lower. We're still not at the bottom. They will stay this way for a while longer. They are poised to go up....What is the truth? Are we at the bottom or could they go even lower? With Rates being at "Historic Lows", should I float or lock in my interest rate. The answer is "It depends".
1. How long until your settlement date? If your settlement date is within a week, you will need to lock in order to allow time for re-disclosures required by law and to get your loan in to closing. If your settlement is longer than 30 days away, you may incur an additional cost by locking.
2. How risk-averse are you? Are you a gambler or ultra-conservative?
3. What happens if interest rates go up? Will you not be able to eat? Will you not qualify for the house or have to put more money out of pocket to cover the increased payment?
4. Will you lose sleep worrying about your interest rate?
5. If refinancing, what is your current rate? If your rate is already more than 1-2% above the available rate? Will 1/8% lower really make that much difference to your monthly payment?
6. How big is your loan amount? On a small loan, a change of .25% doesn't increase or decrease your monthly payment significantly, but on a jumbo loan, it can mean $100 or more per month!
Once a loan is locked, you have a contract with the lender. If rates go down, most likely you will not be able to capitalize on the lower rate. If rates go up, the lender can't say to you "Oh, sorry. We will have to increase your rate because the market has changed.”
As a loan officer, I am paid the same percentage of your loan no matter what your rate. It is in my best interest to help you to secure the best financing available. Unfortunately, I can’t predict the future, but I do have access to real time mortgage backed security tracking, expert market insights, proven lock/float advice to help you make the best decision on locking versus floating your rate to help you make the best decision for you.
There is never the perfect time to lock or to float, you have to make the decision based on your answers to the above questions and then let it go, otherwise you will make yourself crazy second-guessing your decision!
Should I lock in my interest rate? My best answer is “It depends!”
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