Deciding Whether to Lock in Your Mortgage Rate? Here’s What You Need to Know

“Should I lock in my mortgage rate now or wait?” It’s the question on every homebuyer’s mind. While we all wish for a crystal ball to give us the answers, the truth is, there’s no one-size-fits-all solution. But, don’t worry, I’ve got some insights to help guide your decision. Float simply means you have not locked in your interest rate and the rate or the points will continue to fluctuate daily with the market. Locking means you have locked in the interest rate and points.

Be aware: Just because you have asked your lender to lock in the interest rate doesn’t mean you ‘ll be approved. Depending on your credit score, or numerous other factors, the final rate and points could vary. If you are denied approval for that loan program and you are approved for a different loan program that lock won’t be valid on the new program. In short, unless you have full loan approval just because you are locked, the final rate and points could change.

First Up: If You Want a Sure Thing…

If you’re looking for a straightforward answer, and you’d rather not gamble on what rates will do next, then locking in your rate is the way to go. It’s like choosing a fixed price for your gas for the next ten years, regardless of whether prices go up or down.

But, If You’re Feeling a Bit More Adventurous…

Accepting that no one has a crystal ball can be liberating. You might think experts have the inside scoop, but in reality, predicting market movements is as much a gamble for them as it is for you. Even though it might seem like there’s a method to the madness, market predictions have proven to be a hit or miss.

The Catch with Predictions

Because everyone consumes information differently, we tread lightly with our predictions. You’ll rarely see us lean too heavily one way without mentioning other possibilities. It’s not about telling you what will happen; it’s about giving you the knowledge to make your own informed decisions. Think of it as learning to fish instead of being given a fish.

Considering Locking Your Rate? Think About This…

Many folks lean towards waiting for rates to drop before they lock in, attracted by the potential savings. But, there’s a pattern among the pros: the more they understand the market, the more they tend to lock in rates early. This doesn’t mean one strategy is universally better; it’s about managing risk and personal preference.

When Floating Could Work in Your Favor

If you’re planning to lock in your rate by the end of the day based on market alerts.
When you need to qualify for a loan at current rates or if a short-term rate drop is predicted.
If you’re aiming for a lower rate and are prepared to lock in if rates worsen throughout the day.

When It’s a Gamble to Float

Betting on market trends without solid evidence.
If you closing date may be delayed (especially for new builds). When a lock expires you are usually subject to the worst case of the locked rate or the current rates–whichever is higher.
Hoping for rates to drop because they’ve been high recently, or vice versa. When rates are increasing sometimes they just keep increasing!

Solid Reasons to Lock In

You’ve been floating and rates have improved, so now might be a good time to lock in those gains.
If rates drop suddenly and lenders start to increase rates for other reasons, it might be wise to lock in before things change.

A Reality Check on Predicting the Future

Day-to-day, predicting mortgage rates is a gamble. Historical trends suggest that trying to outsmart the market often doesn’t end well. Remember, if it seems obvious to you, others have likely already acted on it. Keep in mind, that if you could predict rates you would make millions of dollars a year as a bond trader!

So, What’s Next?

If you’re tempted to test your theories without risking real money, go for it! Keep a record and see how you do over a few months. If you find a winning strategy, keep it to yourself and maybe consider a career in hedge funds. Otherwise, understand that it’s often a 50/50 chance, and make your lock or float decision with that in mind.

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