 Though mortgage interest rates are barely rising and they are still nothing to sneeze at in this (or any other) economy, there are some points to keep in mind if you’re buying a home and want to lock in a good rate.
Viva Las Vegas!
Locking in a mortgage rate is a lot like gambling in Las Vegas (or Atlantic City, or Monte Carlo — whichever you prefer). You’re essentially hedging your bets on something that might happen. Sounds scary, or fun, depending on your perspective, but this is a house you’re buying, and it pays to be smart.
For example, say you’ve found the house of your dreams (or at least your dreams up to this point), and you’re ready to buy. The current owners have asked that you not move in for 60 days, pending a job transfer. You’ve been there before and know how they feel — and you’re not in a huge rush to move in anyway — so you agree.
The question now is do you lock in a mortgage rate with your lender — or do you roll the dice and wait until Day 59? That’s the dilemma: lock or float? It’s a tantalizing decision that could mean a huge payoff over the long term if, say, rates drop by a quarter-percent. However your chances are equal that rates will go up.
Even though you’re probably better off by doing so, locking your rate can be a messy, hair-raising process.
Economic factors
A few economic factors usually affect long-term interest rates:
- Inflation. If inflation rises, long-term interest rates are likely to rise, too.
- Economic Growth. A strong economy tends to urge a fear of inflation, so if the economy picks up, mortgage rates could rise.
- International economic activity. An economic crisis in a foreign country has often resulted in a "flight to safety" phenomenon. This means foreign investors will often buy U.S. Treasury bonds until the crisis is over. Mortgage rates tend to move in the same direction as Treasury bonds.
|
The truth is, no one knows which way mortgage rates will go. The safest bet is to lock in your rate and be content with your decision. Rates are still quite low at the moment, but they could go up soon. No one really knows for sure what will happen.
Tips to prevent lock-in headaches
There are a few things you can do to prevent the inevitable lock-in migraine, however. First, get your rate and points, if applicable, in writing from your lender — along with the origination fee (a percentage of the loan) and miscellaneous closing costs (these are usually not more than $100 total). This will ensure there are no discrepancies or questions come closing time.
Second, if it sounds too good to be true it probably is. Whoever said that famous quote was right — whether the subject is loans, cars or relationships. A loan that’s closed at a slightly higher rate is much better than a loan that doesn’t close at all. On the same subject, use lenders you trust. Ask your friends and REALTOR® for recommendations.
Last, it absolutely does not pay to be late filing the necessary documentation and, in fact, you’ll probably be the one who pays in the end. If you don’t get the required information to your lender within the specified time period, you will risk your lock. There’s a lot that goes into processing a loan — especially if you’re not pre-approved.
By the way, that’s another excellent argument for getting pre-approved before you latch on to the house of your dreams because of the time it saves in the end when you really need it.
The bottom line when locking in a rate? Keep a cool head, get a loan with a lender you trust, and try not to predict the future. You’ll be much happier in that dream house in the end.
|
