Interest rate ups and downs

If you’re shopping for a mortgage to buy a home or refinance your existing loan, you’ve probably noticed that interest rates change almost every day. And you’ve probably discovered that these ups and downs can affect how much you can borrow and how much your monthly payments will be.

Some borrowers become confused or frustrated by interest rate fluctuations. But these changes are a normal part of the financial markets. That’s why it’s a good idea to keep a watchful eye on interest rates if you want to borrow money or have an adjustable-rate loan.

Many economic and political factors affect interest rates, and sometimes even the experts aren’t certain why interest rates perform as they do. Moreover, long-term and short-term interest rates aren’t necessarily in sync. For example, sometimes mortgage rates can rise even when the Federal Reserve cuts short-term bank interest rates.

Fortunately, there are ways that you can minimize the impact of interest rate changes on your financial future if you’re looking for a loan:

Stay alert. Keep in close contact with your loan representative from the day you submit your application until your loan is funded. Don’t let your attention lapse just because you’ve been prequalified or turned in all of your documentation.

Lock your rate. A "rate lock" can hold an interest rate on your loan for a specific period of time. Be sure to find out whether your rate has been locked and if so, when the lock will expire. A verbal rate lock may be vague or good only for a short time, so you should always get a rate lock in writing.

Be conservative. If you’re shopping for a home, don’t overextend yourself financially. Figure out how much you can afford and then stick to that limit. If you make an offer that’s within your means, you’ll probably still be able to buy that home even if interest rates creep up before the deal closes. A conservative approach is also appropriate for a home-equity loan.


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