Should I lock or should I float?

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The somewhat edited-to-fit words of the English-punk-rock-poets, the Clash, “Should I lock or should I float-nnnoooowwwwww . . . If you lock there could be trouble . . . if you don’t there could be double.” 

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Ah, the million-dollar question . . . it comes in a few different versions and varieties, but they all mean the same thing.  “Is now a good time to refinance?”; “What do you think mortgage rates will do over the next weeks and months?”; “Do you think mortgage rates will go up/down?”; “Should I lock-in now and protect my mortgage rate, or should I float and see what happens?” 

Translation:  I want the best rate on my mortgage (and who doesn’t).

With the best tools available, I monitor the mortgage-backed securities market to help my clients make the best-educated decision available on the trends in the mortgage market.  I give advice to lock-in when the market is unstable, un-predictable or moving in the wrong direction; and I give advice to float (not lock-in) when the chance of reward (better rates) outweighs the risks of waiting.  Inevitably, like even the best economists, the best market-forecasters, and the best weathermen (weather-people??), sometimes my advice works out perfectly . . . sometimes not so much.

So, what should you do when looking to refinance or purchase a home?  How do you decide to lock-in now or wait and see what happens?  My advice to clients (in addition to giving them market data, market trends and up-coming economic release info that may move the market) has always been this:  which would make you more upset, if we DID lock-in and mortgage rates went DOWN, or if we DID NOT lock-in and mortgage rates went UP.  Most people choose the latter — not locking and rates going UP would make them more angry, giving them a higher payment than they had hoped for and expected. 

Secondly, be content with your decision.  Yes, ultimately, the decision is to you, the borrower.  Locking-in your mortgage means that the broker has reserved money with a specific investor in your name at that particular rate . . . and in most cases, the lock-in is for better-or-worse.  If mortgage rates go UP, you would be horrified to get a call from your mortgage broker saying, “Yeah, I know we locked-in, but . . . ”  Although, I have learned to not be surprised when I get the same type of phone call on the flip-side of that analogy. 

Trust me, everyone wants the best deal on their mortgage.  And if you are willing to bail on your mortgage broker — who provided you with timely advice, who locked your rate to protect you against a volatile market, who you would have been indebted to had the market moved the other way, who has (assumably) provided you with outstanding customer service . . . if you are willing to jump-ship on him or her, because you can save a few $$ somewhere else . . .  (deep breath) . . . well, I’ll say this, you’re not the only one.  At the justification/rationalization of saving a few dollars, people sometimes make strange decisions, forget previous conversations, and quite simply change the rules — i.e. “Yes, I know I asked you to lock-in my rate, but now . . . ”

As I told a good friend of mine yesterday — who asked the aforementioned million dollar question (in a slightly different way), “Do you think this will be as low as mortgage rates go?” — I told him, “we will know for certain that mortgage rates have hit their lowest point once they go up and never come back down.”

Jeffrey Pinkerton is a Mortgage Consultant and President of Hillside Lending, LLC and writer for “the Mortgage Blog.”  Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing.  For more information about available programs and interest rates, please visit www.hillsidelending.com.

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One Response to “Should I lock or should I float?”

  1. Cuts like a Knife . . . 0.75 point Fed rate cut « The Mortgage Blog Says:

    […] now, I will stand by my refinance advice from my previous post for locking-in your rate and for adjustable rate mortgages (see […]

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