Should I lock in my rate?

Borrowers ask this question all the time. And you should — you’ve spent a lot of time finding the best deal. If you don’t lock it in, the rate could change.

Obviously, if you thought rates were going up, you should lock in the rate. And conversely, if you think rates are going to go down, you would choose to float your rate or not lock in.

The tough part is it’s often difficult to know for sure where rates are going to go before they change. And most lenders have black out periods where the old rates are no good and the new rates haven’t come out yet. At this point, you’ll probably say to your loan officer, “Can you call me before rates go up and then I’ll lock in?” Which is like saying to a stock broker: “Call me before the market tanks so I can sell my shares.” Even seasoned loan officers can’t tell you when to lock in or not. They might have a sense from day to day based on how the bond market is doing if rates will go up or down, but beyond that, it’s really up to you to decide what to do.

How do you know where rates are going to go? In general, bad economic news makes rates go down. So if you’re applying for a mortgage, you want everyone to lose their job (except you, your loan officer, and your underwriter). But the news has to be surprisingly bad or exceeding expectations to really affect the market. For example, if the bond market has already priced in unemployment at 7.9%, then the next month the number is 7.4%, bonds might sell off and rates might go up. Why? Because unemployment (while still high) was lower than the previous month.

Conversely, good economic news is bad for rates. So if Consumer Price Index and PPI both show a rise in the cost of goods, that signals inflation on the horizon and rates will go up.

Realistically, when you’re getting a mortgage, you only have a certain amount of time to decide whether or not to lock in, because once your file is close to closing, you have to lock in so the lender can prepare closing docs. So you maybe have a 45 day window (while your loan is being underwritten and approved) to play the market. Unless rates are moving dramatically day by day, your exposure up or down is probably 1/8% to 1/4%. So if you don’t want the headaches of timing the market or trying to “catch the bottom”, follow this advice:

INSIDERS TIP: if you like it, lock it.

Last thought — what if you could have the best of both worlds? Lock in and still have your rate go down if rates improve? Then you should get a float down option – a win win in the world of rate locks.

For up to the minute rates and advice on whether to lock in or not, call Amerifund at (888) 650-7316 or fill out this form and someone will contact you.