This week’s Q&A column is sponsored and written by Brian Bonnet, Senior Loan Officer (NMLS ID# 224811) of Atlantic Coast Mortgage, LLC (NMLS ID# 643114). To learn more about current mortgage rates and the home loan process, contact Brian at 703-766-6702 or email [email protected]. You may also submit your questions to McEnearney Associates via email for response in future columns.
Question: Where do you think interest rates are going? Should I lock my interest rate now or float it?
Answer: Two very common questions asked by prospective borrowers who are either purchasing a home or considering refinancing their existing home mortgage. The hard truth is that even the most experienced mortgage banker cannot know for sure. The real questions being asked by the consumer of the mortgage professional are, “do you have a crystal ball” and “are you able to time the market?” Consumers should be wary of any mortgage professional who suggests he or she has that kind of clarity or ability.
The decision to lock your rate or float the rate is a question about gambling. You lock your interest rate to be protected against rates going the wrong direction between the lock date and your settlement date. You float your interest rate because you are betting interest rates will improve before your settlement date.
In a market environment where bond prices are steadily increasing and interest rates are steadily falling, it might not be a bad bet to float the rate. We do not, however, generally have that type of bond market. Instead, we usually have a bond market which experiences daily up and down prices resulting in the up and down movement of interest rates.
In our local real estate market, most residential real estate transactions go from contract ratification to settlement in under forty-five days which means there is generally not enough time for a true downward trend of interest rates. So, getting back to the question of whether to lock or float, I usually provide the numbers to the consumer and remind them that no one can guarantee rates will improve between that point and settlement. Most consumers understand and most choose to lock their rate.
Refinance transactions tend to be a little different. There is often no time frame for the consumer during which the transaction must be completed, so many consumers choose to hold out for lower rates. Sometimes it works in their favor, but often it does not. Consumers are usually in communication with mortgage professionals because rates have dropped below their current mortgage rate.
In many cases, the lower rates will allow the consumer to save hundreds of dollars per month. But often the consumer wants to hold out for even lower rates and more savings. Rates move the wrong direction faster than they improve and if that happens while a consumer is holding out for lower rates for a refinance, they may lose their opportunity to save at all.
I often advise consumers that once they choose to lock the rate, they should put that issue behind them. They can drive themselves crazy second guessing whether they made the correct decision to lock. The focus at that point should be on all the other aspects associated with purchasing the home and moving into that home, or how the savings associated with their refinance will impact their monthly budget.
If you would like more information to help plan your next move, please contact Brian Bonnet at [email protected] or call 703-766-6702.
If you would like a question answered in our weekly column or to set up an appointment with one of our Associates, please email: [email protected] or call 703-549-9292.
McEnearney Associates Realtors®, 109 S. Pitt Street, Alexandria, VA 22314. www.McEnearney.com Equal Housing Opportunity. #WeAreAlexandria