Every borrower makes a decision to lock or not lock (float). This is often an emotional choice because the pricing on a loan changes daily and sometimes intra-day. As a mortgage professional, I find this part of the business challenging because market movements are out of our control.
The process is very similar to the stock market, prices change day to day, even minute to minute. We are not the hero if pricing improves nor the villain is pricing gets worse.
We can only do our best with the information available. Over the years, I have come up with 4 rules.
1. Lock When it Makes Sense
If you are purchasing a home and everything lines up, you are comfortable with the mortgage payments, home is in good shape and the appraisal is back, then it is time to lock your loan.
Over the years, I have seen more borrowers be upset when rates increase rather than being happy because rates dropped after they locked. There is not enough time to gamble with your rate in such a short time period.
2. Buy on Rally – Rates Move Up and Down
Typically, rates move up quicker than they come down. When rates rise, there seems to be panic or a fear and things get accentuated like they are going to keep rising. However, when rates come down, they seem to come down more slowly or tentatively.
Buying on a rally is always good because it’s the happy place to be – pricing is better and therefore, you feel good about the purchase.
3. Don’t Float into the Unemployment Report
The first Friday of each month is marked by the unemployment report. This is typically the most volatile day and sets the pace for the next month.
We’ve seen huge increases in rates when the employment is better than expected. Basically, strong employment means more wages which means more buying power which mean more inflation which hurts bonds.
4. Don’t look back – After you Lock, be Happy
It’s virtually impossible to get the lowest price during the process. I think we think that we can, yet, I live this every day for 25+ years and if someone would figure that out, they would be rich. In the big picture you are buying a rate which it the current rate.
When I got my first mortgage in 1987, I was so happy because the rate was under 10%. Right now, rates are in the mid 4’s, whether it was 4.375% or 4.5%, it is a good thing!
By following the above rules, you will have solid results. During the process, we can provide more details on current trends and market conditions. We subscribe to the Shirmeyer Rate Market Report by Sigma Research Inc. and RateAlert.com for detailed information on the bond/mortgage market and timely moves in the market. In the big picture, market moves are out of your control. In the perspective of locking your rate, we can give you the data to make the best decision in an every changing moving interest rate world.
One further note - Most of our investors offer an interest rate “float-down” option. These typically come into play when interest rates drop dramatically after a borrower has locked their loan. The lender will compromise with the borrower on their rate.
For example, if someone locked at 4.75% and rates dropped to 4.25%, then the lender will allow the borrower to float the rate down to 4.5%. This is just a hypothetical scenario – it is more complicated than that, however, it sometimes happens and it’s always great to call a client and say “guess what – we were able to get you a better rate”.
For more information on interest rates, fees, market conditions or anything related to residential real estate, please feel free to set up a free personal consultation. I'd love to learn more about you, your family, and what you're trying to accomplish in the housing market.