Should I Lock My Mortgage Rate Today?

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Should I Lock My Mortgage Rate Today?

One of the most costly choices you’ll ever make is when to lock your mortgage rate. You might wind up spending thousands of dollars extra over the course of your loan if you don’t lock and interest rates increase. If you lock in and interest rates drop, you can lose out on significant savings.

Key Takeaways

  • You may be able to conclude your loan on schedule if you close your mortgage soon.
  • Your closing will be postponed if you don’t lock your rate. You risk losing your new house if you don’t close on it before the deadline.
  • Since rates are expected to increase in 2022, closing sooner will probably result in a lower rate.
  • Numerous factors influence mortgage rates, and no one can anticipate them with any degree of certainty.

How Mortgage Rates Work

The interest rate on your mortgage is known as a mortgage rate. Rates often fluctuate by a fraction of a point during the day and by several points over the course of a year. Mortgage rates may significantly fluctuate over an extended period of time.

Rates Over Time

In 1981, the average 30-year mortgage rate was 16.63%. Thirty years later, in 2021, the average rate was 2.96%.

Deciding When to Lock Your Rate

It may be quite tough to decide when to lock your rate. Even after spending hours reading news articles, bond yield curve data, analysis of inflation rates, job market expansion, and Federal Reserve memoranda, you may still feel uncertain about the best time to lock in your interest rate.

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Mortgage rates may fluctuate dramatically and are often difficult to forecast, especially in the event of a major natural catastrophe, a huge day on the stock market, or a terrorist incident. Rates are increasing as of 2022 and are predicted to keep climbing. Predicting a future mortgage rate without a crystal ball is similar to estimating the worth of a certain asset. Given that the Fed is anticipated to increase rates once more, it is reasonable to assume that rates will be lower in 2022 than they will be in a few months.

The greatest money may be saved by securing your rate soon if you’re thinking about buying a house or refinancing your mortgage.

Keep in mind that the present real estate market is quite competitive if you are actively looking for a property. Many accepted offers have tight closing dates, so securing your rate as soon as possible helps you close on time. Delaying locking your rate might cause you to miss deadlines and even lose out on your house. In this circumstance, it is advised to lock as soon as possible.

What if mortgage rates fall after I lock?

You still have alternatives if mortgage rates decline after you lock in your rate. To lock in a reduced rate, you may be able to halt the procedure with your present lender and restart it with a new one. You will still be required to pay the second lender any appraisal costs that you had paid to the first lender. Starting afresh with a different lender may cause closing to be delayed, which might result in you missing out on your home if it has a tight closing date and waste your original lender’s time. Make careful to check for costs before opting to start anew for a cheaper rate since some lenders even charge more if you terminate the procedure.

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What role does the Federal Reserve play?

Your mortgage rate is heavily influenced by the Federal Reserve. Although it doesn’t directly control mortgage rates, the Fed does control the federal funds rate. Mortgage rates fluctuate both in response to what the Fed actually does and in expectation of what it will do at its eight annual meetings.

The Fed has begun increasing rates; the most recent increase took place in 2022, and additional rate increases are anticipated this year. Mortgage rates have already increased as a result of this rate hike. Mortgage rates are anticipated to continue rising as a result of alleged future rate rises.

What happens if I never lock my mortgage rate?

At some point, you’ll need to lock your mortgage rate in order to finalize your loan. You must get closing disclosures from your lender within certain deadlines that include information about your rate and closing expenses. Without a rate lock, your lender cannot provide an accurate closing disclosure. Delaying locking your rate might result in a substantially higher interest rate in the road if rates rise. A higher interest rate may really exclude you from receiving your loan if you are on the verge of exceeding your financial capacity.

The Bottom Line

For those of us who overthink everything, deciding whether to lock your mortgage may be a painful process. Nearly every significant event will have an impact on mortgage rates, which may cost or save homeowners hundreds of dollars.

The Fed is anticipated to increase rates many more times this year if the labor market remains robust, thus locking your rate sooner rather than later would probably provide you the greatest interest rate as of 2022.

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