There’s a couple ways to answer the question of when to lock your mortgage rate. If you are purchasing a home, you likely have purchase contract constraints such as the settlement deadline that forces you to lock by a certain date in order to close on your house in time. In the case of a refinance, you might have much more time to consider your lock date because there are no time constraints beyond the date of your credit report, approval, and appraisal.
Locking your Mortgage Rate - Purchase
Since you are constrained to time, locking your rate should come down to what you expect in your payment, and a consideration of current mortgage conditions. It is unusual for a mortgage professional to be able to guarantee a lower rate in coming days. Recently however, the overwhelming consensus among mortgage experts is that rates will remain the same or improve over the coming months. Obviously, that ensures a borrower of nothing.
Lock your interest rate when rates are good. If you have been offered 4.875% on a 30 year fixed mortgage, at this time BeatMyBroker.com can say that the offered rate is excellent. Do not hold out for an eighth better in rate. Interest rates usually get worse much faster than they get better.
Additionally, what does 1/8th lower in interest rate really mean? On smaller loan amounts, that 1/8th difference might only save your $10-$15 a month. Is it worth risking rate worsening that could happen in a matter of hours that could increase your rate by .25%? Probably not.
Also, many lenders in this low interest rate period have put priority on locked loans. This means that when your loan is submitted for approval, if its locked, it will get underwritten before unlocked loans. When you have time constraints like those found in a real estate purchase contract, this can mean getting your loan approved in time for closing…or NOT if you don’t lock.
Locking Your Mortgage Rate - Refinance
Locking your interest rate when refinancing is a little bit different. You could lock at any point up until your approval has expired. This time period usually lasts from 60-90 days after your initial application with the mortgage company.
It would probably take 60-90 days of research just to understand rates well enough to make a good prediction on whether or not rates will increase or decrease. True mortgage professionals have invested a considerable amount of time learning about market indicators and mortgage backed securities just to make educated guesses on interest rate trends.
So when do you lock? Lock when you see a benefit. While there are no time constraints beyond your approval time frames, is it really worth gambling with odds of interest rate decreases? Or increases if you lose your bet?
Case in point, if you have 6.25% on your mortgage, and you have the ability to lock in at 5%, with the SLIGHT chance of interest rates dropping to 4.875% or maybe even 4.75% if the planets align correctly, lock the loan. Decreasing your interest rate 1.25% should have a substantial effect on your monthly cash flow from an interest savings perspective. You will be kicking yourself if you hold out for that extra .125%-.250% if interest rates actually increase.
Always lock if you see a real benefit to doing so. That’s all we’re saying.