Lock Now or Forever Hold Your P&I

I know, I know, this is a cheesy title for the week’s blog entry, but it was inspired with the best of intentions. Since mortgage refinance rates hit their lows earlier this year, there has been a slow and steady drift upward. Mind you, we are still sitting at rates that are unbelievable taking the historical perspective, but none-the-less, not at the rock bottom yearly lows.

I have received an avalanche of inquiries recently from refinancing homeowners about when to lock their rate. Where will mortgage rates go from here? As I have said all along, there is no way to predict where mortgage rates will go as there are too many variables involved, particularly in today’s volatile US economy.

Rate shoppers are thinking, “sheesh, I didn’t lock when 30 Year Fixed mortgage rates were at 5 percent, and now they’re at 5.5 percent and that seems high”. To give a little perspective, last year’s rates at this very same time for 30 Year Fixed mortgage rates were near 6.5 percent!

At current home loan rate levels, the risk of movement is far greater to the upside than to the downside. Consider in the future that we encounter high inflation, continued housing market problems, and a flight out of US Treasuries. These variables alone, which are not out of the picture, could cause mortgage rates to climb rather rapidly, to 6.5 percent, 7.0 percent, or even further.

Now lets take the counter approach and say that the US government announces another buy-back program for bank toxic debt, mortgage backed securities and treasuries. This would cause rates to drop quickly, maybe back to the 5.0 percent level for a 30 Year Fixed rate mortgage.

This brings me to the main point of this week’s lamely titled post. RISK. What are you risking by delaying the lock of your new home loan by waiting for refinance rates to drop further?

If, by refinancing at current mortgage rates, there is little or no benefit for you, then of course it would be wise to wait on the market to see if rates drop further in the future.

On the other hand, if refinancing now creates a significant financial benefit for you, there is a real financial risk for you to delay your lock. Consider that even ‘IF” rates drop down by another one-half percent to match the historic lows of all-time, the net additional gain for your risk will not be substantial (about $60 per month for a $200,000 home loan).

The real pain occurs if rates go up from here while you delayed your rate lock, and never get the opportunity to refinance. As we have witnessed over the past year, mortgage rates can move swiftly and a current beneficial deal can turn sour in a heartbeat.

Citing the previous scenario, assume a borrower can save $250 per month refinancing a $200,000 home loan now. The homeowner would be risking the loss an in-hand benefit of $3,000 per year ($250 x 12) by delaying a rate lock in hopes of hitting the market bottom rate to net an additional savings of $720 per year ($60 x 12).

Anyone in business would tell you that the Risk/Reward analysis for this example weighs heavily in the favor of locking now, while the getting is good.

So, what if I lock at a 5.5% mortgage rate today, a perfect storm news story for rates hits the wires and rates drop to 5.0% tomorrow? Who Cares!

If you make your rate lock decision with sound financial reasoning examining the current risk and reward, you shouldn’t care either, because you made the proper decision for the current financial environment. Plus, you will already be sitting pretty with a better financial scenario at a lower interest rate.

Too many people have been hurt, or I should say, lost out on a significant financial benefit this year by delaying their rate lock for greener pastures. And who could blame them when financial “experts” on CNBC, CNN, FOX, etc, were telling people that rates were going down to 4.0 percent!

Just remember, there is no way to accurately predict where mortgage rates will go. You have to make your refinancing decision based in the “Now” and on your specific mortgage benefit scenario, utilizing Risk and Reward as your guide.

If you are considering a refinance now and need some help, have questions, or need some competitive rate quotes, please check out the popular Refinance Tool Box. Just give a call at 888-850-9888 or fill out a Rate Quote Request online for professional assistance without the aggressive high-pressure sales tactics.

May the Mortgage Refinance Rates be with You!

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