March 26, 2017 01:15 AM Eastern
Mortgage Rate Lock Recommendation
March 24, 2017 - Lock
Judging by early market trends, it looks as if mortgage rates might hold steady today, or maybe inch up just a bit. However, those trends frequently change speed or direction during the day, so a sharper rise or a fall remain possible. And today's forecast could be disrupted by events due in coming hours, including the House of Representatives vote on healthcare reform, and five speeches by four top Fed officers. Still, if we were currently buying a home, we'd lock our rate now, unless we were following a longer-term float strategy. Read on to discover the risks and attractions of one of those ...
Following last year's presidential election, we saw the "Trump bump," when many markets and mortgage rates 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 falls in mortgage rates during roughly the first 10 weeks of this year, but by last Tuesday they were back close to three-year highs. The day after, they plummeted, and since then they've fallen or held steady every day but one (yesterday). That's probably because many investors are spooked by the inability of the executive and legislature to agree on healthcare reform: Yesterday's House vote was abandoned and the one scheduled for later today is too close to call. MSNBC gave its take on the situation yesterday afternoon: "Investors have been keeping a close eye on the vote as a prolonged battle on the health-care front could delay market-friendly measures, including tax reform and fiscal stimulus. Expectations for such policies had been a boon for the stock market's postelection rally."
The problem with such changes in markets' moods 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 turn out to be the case, but it's a risky bet – as a glance at the Mortgage Rate Trends chart above might suggest. Still, following last week's Fed rate hike, one potential brake on falls has been eliminated for now.
"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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