When Should You Lock Your Mortgage Interest Rate In?

Take your crystal ball and….  Okay, I will be serious now.  It is hard to determine the best time to lock in an interest rate. Interest rates move based on what mortgage-backed securities do a.k.a mortgage bonds.  If mortgage bonds get better than interest rates get better and visa versa.  Sounds fairly simple right?

Mortgage bonds can change multiple times a day just like stocks do.  Normally stocks and bonds work inversely so if stocks are getting better bonds are getting worse.  When the economy is doing well bonds can suffer because investors are more willing to take on risk by coming out of bonds and going into stocks.

I follow mortgage-backed securities real time everyday and try to take the available information I have along with the advice from the service I use, http://www.mortgagemarketguide.com/, to advise my clients whether to lock or float the interest rate.  There are no guarantees and it will all depend on the amount of volatility you can handle.  My advice is if you are happy with your payment then lock the rate in.  Yes rates can get better but they can also get worse. 

The nice thing is that most banks will let your renegotiate to a lower rate if the market improves.  You need significant improvement and you won’t drop to market rates.  Here is an example to help you understand this better.  If you lock your rate at 5% and interest rates move to 4.5% you would probably be able to lower your rate to 4.75% without a cost.  That’s a pretty good deal in my opinion.  Don’t you wish this could be done with stocks too? 

Here is a great YouTube video all about interest rates from one of the contributing members of MortgageMarketGuide.com http://www.youtube.com/watch?v=vj8bZGkMST0.