April 28, 2017 09:59 AM Eastern
Mortgage Rate Lock Recommendation
April 27, 2017 - Float
It is looking as if mortgage rates might hold steady again today, or maybe inch either side of the neutral line. However, that prediction is based on early market trends, and those frequently change speed or direction during the day. So a sharper rise or fall remains possible. Meanwhile, that forecast could be disrupted later by many factors, including:
- Continuing jitters over a possible government shutdown, starting tomorrow evening. There's a stopgap bill in the House to prevent that, but it's yet to be passed.
- Mixed economic data published this morning. The trade gap was better than expected, but weekly employment numbers and orders for durable goods disappointed.
- An auction of 7-year notes by the U.S. Treasury.
- Political and geopolitical news that might affect the U.S. and global economies.
Still, if we were currently buying a home, we'd float our rate now, and revisit that decision tomorrow morning. Read on to discover why you might prefer to lock.
Average rates for 30-year fixed-rate mortgages held steady yesterday, in spite of the unveiling of the administration's tax plan. CNBC explained: "The plan from President Donald Trump's administration to cut the corporate tax rate by more than half was met with skepticism in financial markets because it could expand the federal deficit and send interest rates sharply higher." If that skepticism takes hold more generally – and some are already worried about the President's ability to deliver his pro-business agenda – the so-called Trump Bump (the post-election boom in some markets) could go into reverse. That would be good for those who want low mortgage rates. What happens next will depend on how perceptions of that delivery issue evolve – and on whether economic, political, and geopolitical news becomes more or less positive in coming days. Absent other factors, good news tends to push mortgage rates up.
That uncertainty is why many observers would urge you to lock your rate the next time a significant rate rise looks likely, in case that heralds a resumption of the overall upward trend (the Trump Bump) that has dominated since early November. But falls over the last six weeks might encourage you to carry on floating in the hope a sustained downward trend will solidify soon. The latter might well turn out to be the case. But it is a risky bet. Are you a gambler?
"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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