Daily Mortgage Interest Rate Lock Advisory
Should you lock or float a mortgage rate?
Mortgage interest rates -- just like stock prices -- change price daily and you can win or lose a little if you don't know what you're doing. The decision to float or lock an interest rate should be based on timing-- like when's your closing date, what financial reports are due in between now and your closing date (like job reports, employment forecasts, Fed rate changes), --how likely are these reports likely to move the markets, and your risk tolerance.
A conversation with a professional Loan Officer who knows your personal situation is generally has the best advice.
For the home buyer with a signed a purchase agreement on a home, we almost always suggest you lock as soon as possible. The sooner you lock your rate, the less chance you have of losing in the Mortgage Rate game.
If you are refinancing, you can gamble a bit more. You are not required to do anything-- you can afford to see what the mortgage market might do. But realistically, if the interest rate you are looking at today looks good, go ahead and lock. Holding out for an 1/8th - 1/4% lower interest rate may only equal another $20 or $30 a month less on your payment isn't worth the risk of rates going higher! If you want to gamble... play slots, cards or dice.
What is a Rate Lock Period?
The lender will usually quote rates along with a rate lock period, usually 15, 45, or 60 days. The loan must close within this period. The longer the rate period, the higher the interest rate.
What is a Rate Lock?
When you "LOCK" your interest rate with your lender, you and the lender agree this is the guaranteed rate you will receive, and that no matter what the markets do before closing, you will not be charged a higher rate if rates go up, and you will not be able to get a lower rate if rates go down. Your rate lock should be in writing.
What Does It Mean to Float?
Floating your rate means means that while your loan is in progress, the rate is NOT yet guaranteed. You are taking the risk that interest rates will either not go up or that they will fall. If rates have been dropping, then you might want to take a chance that rates will be lower by the time you close your loan than they are today. Discuss the floating with your Loan Officer. Sometimes it is worth the gamble, sometimes it isn't.
I received a Rate Quote. Now what?
When buying a home or refinancing, it is common to call around to many lenders to get a rate quote. There are things you need to understand about that quote. A simple rate quote, or online automated rate via a web site is not a guaranteed rate. More often than not, it is not even accurate, but rather, it is designed to capture your attention.
Another common problem with getting a rate quote is you often get one from Lender A on Monday, Lender B on Tuesday, and Lender C on Wednesday. Rates can change daily, sometimes multiple times. Therefore unless you get all your quotes at the same time, you don't have accurate information and may end up going with the wrong company.
Many lenders purposely quote rates lower via their web sites to simply get you to stop shopping around. This is especially true for purchase loans, as you most likely will NOT be in position to actually lock that rate today.
THE ONLY RATE QUOTE THAT MATTERS IS THE DAY YOU LOCK.
DID YOU KNOW? You can pick any interest rate or closing cost you want. Just understand selecting one always affects the other. Want lower closing costs? Your interest rate goes up. Want lower interest rate? Your closing costs go up!
Be wary of anyone significantly lower interest rate or closing costs than anyone else. Mortgage loans don't work that way on any of your standard traditions loans. All lenders essentially underwrite to the same guidelines (FHA is FHA for example), all lender rates are based on the same bond market, on the same day at the same time, and all lenders have essentially the exact same true closing costs.
Other low rate quote tricks for example is a well known national lender quotes rates that you can't even lock in until AFTER your loan has been fully underwritten, and you are just days from closing. The rates look great, but who cares if you can't lock it?