April 19, 2015 06:55 PM Eastern
Mortgage Rate Lock Recommendation
April 17, 2015
Lock if closing in 7 days:Rates are down
Lock if closing in 15 days:Rates are down
Lock if closing in 30 days:Rates are down
The last couple of days' economic news was worse than expected. It may not be bad enough to directly affect mortgage rates, but it could contribute to a general mood that is friendly to small rises. March figures for industrial production, capacity utilization, housing starts, and housing permits all disappointed, while this week's number for initial claims for unemployment insurance also failed to meet expectations. Some relief to the gloom was provided by the builder confidence index, which showed a rise.
However, those disappointments followed on from two more serious ones on Tuesday. First, the International Monetary Fund's (IMF's) announced that it was downgrading its forecast for the American economy owing to the strength of the dollar. In January, IMF was anticipating GDP growth of 3.6 percent in 2015, but that forecast has now been revised, down to 3.3 percent. At the same time, the IMF raised its outlook for both Japan and Europe. Bad domestic economic news tends to exert an upward pressure on mortgage rates because it pushes investors away from the home loans market and toward U.S. Treasury bonds -- on the not wholly unreasonable grounds the American government is less likely to lose its job and default than individual consumers.
The second of Tuesday's upsets was the latest BofA Merrill Lynch Fund Manager Survey, which suggested, "European equities retain much of their allure," and "Japan also remains in favor." This vote of confidence in those foreign economies -- along with the IMF's -- suggests the American home loans market is increasingly going to have to compete globally to attract investors' funds, something else that could yield mortgage rate rises.
A glimmer of hope emerged Wednesday when the Mortgage Bankers Association published its weekly survey. It revealed a fall of 2.3 percent in mortgage loan application volume during the seven days ending April 10, relieving some upward pressure on rates through the law of supply and demand.
It's worth noting that many believe recent bad economic data have been largely caused by exceptional factors (not least the bad weather in March), and that the underlying economy is continuing to recover well, though the strong dollar is worrying. Few expect significant or rapid changes in mortgage rates within the scope of these rate lock recommendations.
Indeed, yesterday's weekly mortgage rate update from Freddie Mac revealed that fixed-rate home loans hardly moved last week, with a rise of just 1 basis point, the smallest measurable amount.
"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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