When Should I Lock My Rate?

As a mortgage professional, I am asked all the time by clients if they should lock now or wait. Unfortunately, there is no easy answer. Interest rates are determined by the market and can change frequently. The market has been particularly volatile in these last few weeks and months with all that's going on in the mortgage market.

Mortgage rates come from the sale of mortgage backed bonds like Fannie, Freddie, and GNMA (for government loans) bonds. Typically bonds and stocks move in opposite directions, so a bad day for stocks may be a good day for bonds and, therefore, rates. This year with all the drama in the mortgage market there have been many days where both stocks and bonds do poorly, but it's still a good general rule. Another good rule is that mortgage rates are hurt by inflation. Anything that suggests inflation is on the way will typically be bad for rates, so if you want to pay close attention to the market to time your lock, look for news that hurts stocks and beware of the hint of inflation.

In this volatile market, the best rule on when to lock is to lock as soon as you can if you can get a rate you like. Rates can change dramatically in a short time, sometimes within hours. Some people are gamblers and like to wait to pounce on the best possible rate while others prefer to play it safe and lock early. The question one must ask, in the immortal words of Dirty Harry, is "Do I feel lucky?"

As a borrower, you have plenty of time to decide. Any time between the point when you know your closing date and when you order loan documents is your window. If you enjoy playing the market and can afford to lose, then go ahead and do it. If you're more conservative and don't want the risk, lock early.

One advantage of using a mortgage broker is that they have more than one lender to choose from. Most lenders pricing on conforming loans will be within 0.125% on any given day. The real advantage is that you can lock early and then, if there is a significant improvement in rates and enough time before closing, switch to a different lender to get the better rate. Once you lock with one particular bank or lender you're locked, but by switching lenders a broker can provide the safety of an early lock with the flexibility to take advantage of market changes.

The most important thing to keep in mind is that it is really your decision. Nobody can predict where rates will be tomorrow, not your mortgage broker, investment advisor, realtor or any of the talking heads on TV. Assuming you don't have a good psychic, your decision on when to lock should be based more on your tolerance for risk than on which way you think the market is going.