To Lock or Not to Lock Mortgage Rate

Photo provided by zert.sonstige_2008 on Flickr

Anyone who was recently “floating” their rate in the hopes of another dip in rates can tell you the answer they would now have in hindsight. As they say, hindsight is 20/20.  But if only we all had a crystal ball, would we trust it or still try to out guess the market?

When you are making the decision to lock in a mortgage rate, there are several considerations.  Is the rate you are being quoted a rate you can live with?  What if it goes up .125% or .25% or as this week saw, .5%?  On $200,000 mortgage, for each .125% your payment changes only about $15 per month either direction, but .5% changes it about $62 per month.  So of course, we are all hoping that the rate drops that much before we lock, right?

Unfortunately and maybe fortunately, rates don’t typically fluctuate that much, that quickly.  When it does, it is amazing and horrible, depending on which end of the change you are on.  Lenders will sometimes be able to renegotiate a lock if the rates drop .5% or more for little or no cost to the borrower.  But, there is no going back if the rates go up and you didn’t lock.  

Are you curious what caused the big jump in rates?  We were so we found a great article on the Wall Street Journal that gave some insight into the current mortgage market.  “Mortgage rates are being pushed up in part by a steep increase in yields on long-term Treasury bonds, which have a strong influence on the cost of home loans.”  The article goes on to explain the potential impact this increase in rate will have on the economy as a whole.  The article has a somewhat pessimistic tone on the economy.  Consider where rates are at!  Although a few months old at this point, Scott’s post about rates being at all-time lows is still very relevant and provides some insight as to where we have been and where we are now. 

Bottom line, the decision is yours, but do a gut check and think how you would feel if the payment goes up because you didn’t lock. Will you still qualify for your loan?  Talk to your lender if rates drop after you locked in to see if there is a way to renegotiate for a better rate.  But be prepared to live with the decision you make.  Once you lock, for the most part, just pretend your loan closed already and you are done with the decision and be at peace with it. 

Lending A Hand,

Cindy Howeth

About the Author | Cindy Howeth

Tags: Rates