Are you getting ready to take the leap? Are you wondering if you should go ahead and lock in your rate now? Or maybe wait a bit to see what happens? We get that. But let me take some time here to provide you some suggestions as the best course of action for your situation. First though, let’s take a 30,000 foot view about interest rate locks.
Lenders take locks just as seriously as you do, and here’s why. Lenders fund each individual loan they approve by pulling funds out of an active line of credit. Prior to doing so however, lenders need to know if there’s a real deal or not. That means are the borrowers who want to lock in a rate are really serious about closing the deal. This is especially important as it relates to refinancing. Contrast that with a purchase loan where the buyers are pretty much locked into an agreement with the sellers.
When buyers and sellers come together, sign a contract and the buyers put up some earnest money, the buyers must have a pretty good reason to change their minds. For instance, a contract is executed and a property inspection is ordered. After a couple of days, the inspection report comes back highlighting a series of some rather serious structural issues. The buyers decide to cancel the contract and get their deposit back. Otherwise, with a clean inspection the buyers don’t really have much authority to just cancel the offer and go back home.
Refinancing on the other hand is completely up to the buyers. It’s your decision and I can’t make that decision for you. I can provide some suggestions and perhaps give you a feel where rates have been and where they are now but experienced loan officers know better than to tell someone when to lock and when to wait. The ball is truly in your court. Once you lock, however, you’re locked.
So here’s what can happen- you can wait to see if rates move down a little more or go ahead and lock that rate in and move on with your transaction. But here’s what can happen. Let’s say that rates have fallen to the point to where a refinance has entered your conversations. You submit an application along with supporting documents, receive an initial preapproval and wait to see what rates are going to do.
One note here, don’t expect to get a firm lock agreement without having a loan submitted and documented. Loan programs today can make rate adjustments based upon your loan amount compared to the market value of your home. Credit scores will also have an impact. So does occupancy as rates for an owner-occupied property are slightly lower compared to a rental property. Once you’ve submitted your documents and your loan is in a position to lock, we’ll let you know. This is also part of our initial conversation when you first call. You’ll want to know where rates are and if a refinance makes sense. We’ll give you a quote and run some numbers for you while at the same time giving you an update on rates. However, without supporting documentation such as paycheck stubs or a credit report, much less an application, you may not be in a position to lock.
Okay, that aside, let’s say you can lock. All we’re waiting for is your direction. Should you lock in now? The answer is in all likelihood a strong ‘yes.’ Why now? Because rates are hovering around 50 year lows. What do you think the odds are of rates falling to 60 year lows? 70? What do you think the odds are that something happens in the market, be it economic or geopolitical, that could rattle interest rates and they begin marching back up to more normal levels? I’d say the latter.
Finally, if rates make sense now, which for most they really do, there really is no reason to wait. You run the risk of seeing these record low rates in your rear view mirror. You had the chance but lost out on the best. Still wondering? Assume that whatever decision you make, you made the wrong one. If you lock and rates drift lower, at least you got a great rate. If you don’t lock and rates move back up, you may have lost your opportunity. The prudent thing to do in today’s marketplace is to go ahead and lock and not gamble with the markets.