March 29, 2017 01:21 AM Eastern
Mortgage Rate Lock Recommendation
March 28, 2017 - Float
Judging by early market trends, it looks as if mortgage rates might hold steady today, or perhaps inch down just a bit. However, those trends frequently change speed or direction during the day. So a bigger fall or even a rise remain possible. And today's forecast could be disrupted by events due in coming hours, including Treasury auctions of some bills and notes, and speeches by two top Fed officers. Still, if we were currently buying a home, we'd float our rate now, and revisit that decision tomorrow morning.
Following last year's presidential election, we saw the "Trump bump," when mortgage rates and many markets soared. They rose sharply, largely because investors liked the new administration's business-friendly agenda, especially on taxes, deregulation and infrastructure spending. True, there were some worthwhile dips in mortgage rates during roughly the first 10 weeks of this year, but by Mar. 14 they were back close to three-year highs. The day after, they plummeted, and since then they've fallen or held steady on every day but one. And they're now at a one-month low. That's probably because many investors were spooked by the inability of the executive and legislature to agree on healthcare reform. That has caused diminished confidence in markets over the President's ability to deliver on other policies, most importantly his pro-business agenda. This morning's Financial Times reflects on "How the mix of bullish and bearish sentiments is muddying the picture."
The problem with such mixed moods in markets is that sentiment can turn on a dime. So many observers would urge you to lock your rate the next time a significant rise looks likely in case that overall upward trend resumes. But recent falls might encourage you to carry on floating in the hope a new downward trend will emerge and predominate in coming days and weeks. The latter might well turn out to be the case, but it's still a risky bet – as a glance at the Mortgage Rate Trends chart above might suggest.
"Locking" your mortgage means that you and your lender have agreed on an interest rate and price for your home loan. Once your loan is locked, that's the rate and price you get, regardless of what happens in the financial markets. If rates go up, you're protected but if rates go down, you won't benefit either -- you close your loan at the rate you've locked and you can’t change it. Locks have expiration dates ranging from 30 to 60 days or more, and the longer your lock period, the more it costs. If you don't close your loan on time, you could end up paying a higher interest rate.
You can lock in your loan at any time during the process. Until you lock your interest rate, you are said to be "floating" your mortgage. The only rule is that you have to lock in before you can close on your purchase or refinance.
The decision to lock or float your loan can have a long term impact so it’s important you make the right choice. That’s why we offer a quick rundown of the key factors that drive mortgage rates today and everything you need to know.
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