When To Lock Your Mortgage Rate

“When should I lock in my rate on my mortgage?” I get this question all the time. What a tough question that is…in most cases it is a question that no one can answer with certainty. So how do I respond about locking rates? I generally explain that if I knew what was going to happen with rates, I’d probably be trading bonds from my yacht in the Caribbean with my wife and children. I use that little bit of humor to clarify the idea that know one really knows what is going to happen with rates tomorrow or over the next month.

There are so many factors that come together in a given day that mortgage rates fluctuate daily. It is not uncommon for rates to range over one half of a percent during the course of 30 days. Know this; even if rates are trending down (or up) it is not uncommon for there to be short term changes in direction that could go against you during the 30-45 days that it takes to close your loan. Because of this, I will always recommend that you lock your loan as soon as possible. This advice is the same whether you are buying or refinancing.

If you are buying a home, it is very important to lock your loan as soon as possible. The last thing you would want is for rates to move higher before you lock in and to find out that with the higher interest rate, you do not qualify for the loan. Now, this would not happen with everyone, but many people buy as much home as they can, and higher rates, even by a little, could affect their approval.

If you are refinancing, and the current rate being offered meets your savings goal, then you should lock your rate. Those that do not fall into this category are generally relying on the hope for low interest rates. I say hope, because that is really all they have to go on as very few people have any real knowledge of what affects mortgage rates.

Although not a scientific study, experience has shown that those that lock their loan early in the transaction tend to end up with a better rate. I believe the reason for this is that when you wait for a better rate ( and they do get better) you still don’t lock because you are looking for an even better rate. Then, when rates move higher (and they always do during the normal life cycle of applying for a mortgage loan) you lock out of fear because rates just moved higher. The end result is that most of those that “play” the rate game lock when rates go higher instead of at the initial interest rate offered or when they do move down.