By Rae Oakley, Flyhomes Mortgage
Congratulations! If you’re reading this, you likely just went under contract on a new home purchase. With your closing date rapidly approaching, your next task is to select your lender and your new mortgage’s interest rate.
Locking in your rate means securing today’s pricing for a certain amount of time—typically either 30 or 60 days (enough time to get you through your closing date). Locking protects your mortgage from future price fluctuations, so if you lock today and rates go up tomorrow, you’re still guaranteed the rates and pricing from today.
It seems daunting, choosing an interest rate for a debt of hundreds of thousands of dollars that you’ll be paying off for the next 15-30 years, but fear not: I’m here to share some tips and tricks for getting the best deal that you will feel confident about.
The first step is to make sure you get quotes from a couple mortgage lenders. We recommend talking to at least two lenders, ideally three or four.
This is important for two reasons: (1) having multiple options provides you with certainty that you are getting the best deal and (2) you might be able to leverage one lender’s quote to get an even better deal with a different lender.
A word of warning: Every mortgage company has different fees, as well as different credits or discount points associated with their interest rates, so it’s important to know what to compare in addition to the interest rate.
Know what you know, know what you don’t know
Mortgage rates fluctuate daily based on the bond market. Factors like inflation, unemployment and consumer price index affect the bond market, whereas generally speaking the Federal Reserve does not.
We’ve seen a lot of press coverage this past year on the Federal Reserve’s rate cuts, and it’s important to know that these cuts have been for the Federal Funds Rate—the interest rate that banks charge one another for overnight loans.
These cuts don’t have a direct effect on long-term rates like a 30-yr mortgage, but they do tend to move together.
This is all to say that by waiting to lock your interest rate, you are trying to time the market… which is impossible. Anyone can tell you how interest rates have behaved in the past, but no one can tell you what will happen in the future. Similar to the weather, we can make educated guesses, but if you find yourself working with someone who claims that rates will increase or decrease tomorrow, proceed with caution.
Remember your timeline
Most lenders cannot proceed with closing your loan until you have locked your rate, so be sure to weigh the risk of waiting for a lower interest rate against the risk of closing late. Closing late can be costly and stressful for both you and the seller. Many sellers are not amenable to moving out the close date, and this puts your earnest money deposit at risk.
For the sellers that do allow you to move out your close, they will often charge a per diem fee for each day that passes after the agreed-upon date, so that extra couple hundred dollars you saved by waiting for rates to drop might be wiped out by the seller’s per diem.
Making the decision
Ask yourself: are you comfortable with the monthly payment on the quotes you’ve received? Do you feel good about the expected closing costs?
If so, you should feel confident about locking in your rate. If you decide to wait and rates go down tomorrow, well then you got lucky. But if you decide to wait and rates increase, then you potentially just lost hundreds of dollars.
What it all comes down to is how comfortable you are with risk. Locking today gives you certainty and a path forward towards moving into your new home.
If you’re still not certain, our Flyhomes Mortgage loan officers are happy to walk through your quotes with you. Just schedule a time to compare quotes!