POOF! There goes your interest rate!
"But do you think they'll go lower tomorrow?". Every time rates drop substantially, this is a question every loan officer hears from prospective clients on the way down. This past week, I heard the question Tuesday, Wednesday, and Thursday as prospective clients considered locking into a new, low interest rate mortgage. Rates fell pretty quickly over the past week. Many clients were considering refinancing rates from the mid or high 4's into the mid 3's, or reducing their term and getting rates down in the 2's on shorter term products (10 or 15 year fixed loans). Many were fortunate and locked in, with my latest lock of the week coming after 11pm EST on Thursday. This client was one that asked Thursday afternoon "do you think they'll go lower tomorrow?". Some other folks responded to my follow up with things like "I don't have time today, but let's talk tomorrow" or "let me think things over and talk with my spouse". Come Friday, those insanely low mortgage rates were gone.
POOF! There went their interest rate!
When people finally had time to talk, rates were still low, but substantially higher than the day before. For many, no closing cost loans turned into loans with thousands in closing costs. Others were looking at rates a full quarter percent higher than 12 hours prior.
Fact is, a quarter percent change in interest rate can be a $10-15,000 difference in interest paid over the life of a loan. Rates can (and have, several times over the past couple years) change that much or more in just a few hours, so when it comes for shopping for a loan, it's important to keep in mind that you're making a $10,000 (or more) decision - not something to take lightly. Consumers have been spoiled over the past few years with low rates, and it's made getting a new loan something of a commodity, but the potential savings when rates plummet can offer some very real advantages, and not giving the opportunity the attention it deserves can cost you an awful lot of money in the long run.
If you're a consumer, this is why it's so important to work with a loan officer BEFORE the day comes to lock in a rate. No one (I really mean this...NO ONE) knows for sure where the market is headed short-term, and you can't control if rates hit their all time low on a day you're tied up and can't give the OK to get locked in. You need to know your options, decide what is the best move for you financially, and work with a loan officer to determine where rates need to be for a refinance to make sense.
Of course, everyone wants to catch rates at their lowest, so here are some tips to keep in mind (also keep in mind, there are exceptions to every one of these rules):
- When rates consistently drop throughout the week, Friday is a day where rates notoriously take a step back up as the market tries to sort itself out ahead of the weekend.
- Rates traditionally move in the same direction as the stock market. This isn't always true, but more often than not if the DOW is down, mortgage rates are heading down too.
- The only time you'll know when rates hit a new low is when they're already on their way back up. Keep in mind, you're not refinancing for a .125 change in interest rate. The difference between 4.75% and 3.75% is a reason to refi. 3.625% sure would be nice, but that extra .125 isn't worth risking a jump in rates.
- Experience Counts. If your loan officer doesn't know what influences the market and can't offer sound, educated lock/float advice, you need a new loan officer.
Reach out to a trusted mortgage banker and find out what your options are in advance of beginning the mortgage process. Don't be one of those people that wake up wondering where that low interest rate went overnight. When your mortgage banker tells you when rates drop enough to save you a ton of money, you should be ready to make a move. Sure, you can take the time to think about it, but don't be surprised if your interest rate, and your potential savings, go POOF!