What should you do when mortgage rates rise?
That is a question many would-be refinancers are asking right now. The month of May was not kind to mortgage rates with the 30-year mortgage rate at its highest point in over a year. Many will choose to continue to sit on the sidelines and wait for mortgage rates to drop again.
There are two problems with that approach, however. First, there is no guarantee mortgage rates will drop again. If you still stand to save money by refinancing, don’t hesitate any longer in case mortgage rates continue to increase. Second, if a reversal in mortgage rate trends occurs, it is very possible it will only be a temporary, short lived correction. The news cycle is typically a few days behind what is actually going on with mortgage rates. By the time you hear mortgage rates are improving, they may very well be moving in the opposite direction. Further, by the time you get enough necessary information to your mortgage loan originator to start the process and lock in an interest rate, you may miss any temporary dip in mortgage rates.
For these reasons, I strongly recommend to anyone who wants to refinance to proceed with the process and complete an application. This has been my practice with clients, so let me explain why I believe this is the best practice. There are several steps in the mortgage refinance process which take time and are the reason why most refinances can take up to 45 days to close. If you can get through most of these steps prior to locking in an interest rate, you will be poised to lock in a rate for a shorter term, giving you better opportunity to take advantage if and when mortgage rates dip. By submitting a signed loan application and all the required documentation, your lender can get started while holding off on the appraisal until you choose to lock in your rate. In most circumstances, the appraisal fee is the only fee charged to the borrower up front, so if rates don’t recover, you, the borrower, have not lost anything.
So, how should you proceed? First, avoid any banks or lenders with a non-refundable loan application fee. This defeats the purpose of holding off on the appraisal. Second, choose a loan originator that is highly detailed. The more he or she documents up front, the less an underwriter will ask for later on. A big reason refinances can tend to drag on is repeated requests for additional documentation by underwriting because the loan officer didn’t sufficiently document everything at the start of the process. Third, when you have executed a rate lock-in and the appraisal has been ordered, be flexible in your schedule and responsive to the appraiser. No one benefits when an appraisal takes two weeks to be completed and sent to your lender.
If you take these steps you will be in a good position to take advantage of lower interest rates and save money on your monthly payments should mortgage rates come back down. And if they don’t recover, you have lost nothing except a little time on the phone with your wonderful loan originator.