When to Lock Mortgage Interest Rate?

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Abciximab
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When to Lock Mortgage Interest Rate?

Post by Abciximab » Thu Mar 13, 2008 10:16 am

My wife and I are buying a home and have between now and April 15th to pull the trigger on locking our mortgage interest rate. Today a 15-year mortgage is around 5.375%, but it seems to fluctuate by about a quarter percent each day. Each 0.5% rate change raises or lowers our monthly payment by $70. We don't have a magic monthly payment that we have to be under in order to afford the house, but I'd like to get the best rate possible.

It's a tough call because I'm essentially trying to time the market (a very un-Boglehead thing to do), but I have no choice. Any suggestions?
An investment in knowledge always pays the best interest - Benjamin Franklin

phil1ben
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Post by phil1ben » Thu Mar 13, 2008 4:09 pm

Chase Home Finance has an option where you can lock the rate and they will allow it to float down. I just refinanced with them. I did not use this option because I happened to lock a conforming 15 year in late January at 4.75% no points. Have not seen rates that low since. You may want to go to their website and obtain more information. There may be some fee for this but you should investigate.

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Rager1
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Post by Rager1 » Thu Mar 13, 2008 5:25 pm

If you can get a mortgage for 5.375%, with inflation in January, 2008 running at a year over year rate of 4.3%, I'd lock that baby in today.

Ed

livesoft
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Post by livesoft » Thu Mar 13, 2008 5:39 pm

I would certainly wait until after next week's FOMC meeting when they are expected to lower interest rates another 0.5% to 0.75%.

ksJoe
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Post by ksJoe » Thu Mar 13, 2008 7:49 pm

Get approved at a second place that doesn't charge a fee if you don't close with them. Then lock with them at an ok rate and wait & see with your first choice place.

malloc
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Post by malloc » Fri Mar 14, 2008 2:36 pm

Every time - that is every time - I have decided to time a mortgage, I have regretted it.

Now I decide ahead of time what offer I would take, then I look for the best offer. If I can find a loan that fits my parameters I lock it.

As a bonus, I have is much less aggravation this way.

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Daffy
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Post by Daffy » Fri Mar 14, 2008 3:48 pm

livesoft wrote:I would certainly wait until after next week's FOMC meeting when they are expected to lower interest rates another 0.5% to 0.75%.


The Fed's movement on the Fed Funds Rate (the overnight borrowing rate for banks) is only one component of the numerous factors used to set consumer mortgage rates. I would not rely specifically on their actions as a guage of where mortgage rates are heading. Since the average 30-year mortgage is typically repaid/refinanced every 10 years, the 10-year Treasury is generally used as the benchmark for mortgage rates. The lowering of short-term rates could lead to a steeper yield curve if there's the risk of inflation (sound familiar?). That could lead to higher mortgage rates even though s/t rates are lower. 30-year mortgage rates are higher today than they were 1-year ago according to bloomberg, but the Fed Funds rate is down 2.25%. Isn't market timing fun?

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Abciximab
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Post by Abciximab » Sat Mar 15, 2008 4:19 am

Thanks for all the help, everybody. I've actually been told by the mortgage officer that the fed interest rate policy doesn't have as much of an impact as usual because there just aren't enough investors in the secondary bond market that actually want to purchase mortgage backed securities. This seems logical (to me at least) as there's a lot of uncertainty about mortgage defaults and investors are demanding a higher premium for taking on increased risk.

I think I could live with missing out on getting a slightly better rate, but I might drive myself crazy with regret if rates went higher and didn't come back down before my closing date. Sounds like loss aversion, huh?

Thanks for pointing out those very interesting figures, Daffy. I guess there's just no way to know what's going to happen. Hell, I better just lock the rate in before I pull all my hair out and spend every last waking moment staring at mortgage rate movements online.
An investment in knowledge always pays the best interest - Benjamin Franklin

malloc
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Post by malloc » Sat Mar 15, 2008 9:50 am

"Your loan officer"???
How many places did you shop?

At a minimum I would say check bankrate.com, your local credit union, and whatever lenders are big in your area.

Do not just shop one source - especially not one loan broker.

MnD
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Post by MnD » Sat Mar 15, 2008 9:59 am

The relationship between fixed mortgage rates and the 10-year treasury is broken. This doesn't help answer the question as to what is going to happen in the near future. Is this "bubble" in mortage rates relative to the 10-year a peak or a trend - who knows.

From page 1, WSJ March 15, 2008
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Buckeye
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Post by Buckeye » Sat Mar 15, 2008 11:55 am

5.375 is a very good rate IMO, assuming there are no points or extra/hidden fees. I'd lock it if I were you!

I think the risk of it increasing a lot is far higher than it decreasing a lot.

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Abciximab
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Post by Abciximab » Sat Mar 15, 2008 1:25 pm

"Your loan officer"???
How many places did you shop?


We're buying a new home, so the builder is giving us a lot of money toward closing costs to use their lender. Yes, I know that's the standard "mark up the base price to put it on sale" technique, but I shopped numerous other mortgage lenders and factored in all closing costs and rate information before deciding whom to use. I was as surprised as anyone that I couldn't get a better deal somewhere else.

It sounds like me and the wifey are going to just lock in Monday to avoid driving ourselves mad.
An investment in knowledge always pays the best interest - Benjamin Franklin

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