To Lock or Not to Lock; The Eternal Question
“To Lock or Not to Lock”, that is the question that I get asked almost every day. I have to dig down deep into my bottom desk drawer to find my magical (and totally hypothetical) crystal ball to determine what rates are going to do. Obviously, I do not know (although sometimes I have a hunch) what rates will do. But, I can’t ever promise what will happen. If I could predict what rates would do, I would probably be in a different profession.
Why is “Locking your Rate” such a big deal?
Locking in your rate guarantees your rate won’t go up (or down, usually) during the process of completing your mortgage. You and I will probably have a few conversations about locking your rate. I’ve tried to avoid the mortgage industry jargon like, “Bips” and “Ticks”, but old habits die hard.
What I’m really saying is that if you want to lock in your rate today, that will be your rate when you close (assuming you don’t need to extend the lock at the last minute due to an unforeseen circumstance).
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What is “Locking your Rate” anyway?
Locking your rate is an industry term (actually, it’s a very important point in your mortgage approval process) where we have a discussion about what rates are today, how much longer you and I think it will take to get your mortgage done, and if you are eligible for a credit or a discount based on the rate you want.
How do I know if rates are going to go up?
No one can know for sure. There are a few indicators that are generally accurate.
Mortgage rates tend to go down when the economy isn’t doing well. One indicator economists like to use is the monthly “Jobs Report”. This report comes out almost every first Friday of a month from the US Department of Labor and tells everyone how many new jobs were created in a given month. The more jobs, the better the economy, the higher the mortgage rates (usually.)
Mortgage rates tend to go up when the stock market goes up. Again, this is a general trend and not a day by day, hard and true, guaranteed indicator. What I’ve noticed is that, generally speaking, when the Dow Jones goes crashing down, Mortgage Rates go down. When the Dow Jones hits all-time highs, or has triple digit gains in a single day, Mortgage Rates are on the rise.
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Can I get a lower rate?
Yes! If we’re talking about locking your rate, that usually means we’re well on our way to getting your mortgage approved. It also is a great time for us to discuss what would go into getting a lower rate, or buying down your rate.
The term “buying down your rate”, is used because borrowers can literally pay money to get a lower rate. It might not always make sense to do this, which is why we should talk about it. There isn’t a tried and true, one size fits all, over-arching solution or rule of thumb here, except if it makes sense to you in your specific situation, then do it.
How do I know if we “Locked my Rate”?
You’ll know. It’s a monumental moment. You get to tell me what to do! You might say, “I want XYZ rate”, and I’ll say, “Sure, do you want to lock your rate?”
What’s even better? You’ll get a letter in the mail and possibly an email, depending on the loan product you are going through, that says you’re rate is locked or not locked. Thanks to the government, and my two personal favorites, Dodd and Frank, mortgage professionals like me have to disclose, in writing, to you when we lock your rate!
So, next time you and I are considering “to lock or not to lock” just remember that I don’t have a crystal ball. Sorry! What I do have is close to 20 years of mortgage lending experience and I can help provide you with all the information you want to make the best decision for your situation.
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