Locking in your mortgage rates

This story in the Washington Post: Mortgage Rates Change in the Blink of an Eye highlights the uncertainty in today’s real estate market.

A lot of factors go into making things uncertain right now. For instance, the media continues to foster the idea of a national real estate market – when no such market exists. All real estate markets are local or regional. And now that the government is working an economic stimulus plan through the system, more and more volatility is going to be present in the markets as the mortgage industry figures things out.

In the mean time keep the following in mind: if you’ve been in your house for more than three years, and you’re looking to buy another house that you’ll be in for more than three years – then now is an excellent time to move-up. Interest rates continue to be at or near historical lows, government backed lending limits have been raised to all time highs, and your house has still gone up in value (at least in Anne Arundel county and surrounding areas).

Have your lender keep an eye on interest rates and make sure you lock in your rate when the time is right. Locking in the interest rate on a mortgage loan before it goes to settlement can save you money if rates go up after you lock. At the very least, a rate lock allows you better plan for closing – since you’ll know what your interest rate and cash requirements will be at the settlement table.

Keep in mind however that lock-ins only last so long – usually 30 to 60 days – so if you don’t have a firm date for your settlement within that time frame you might have to pay extra to keep the locked in rate if interest rates go up. This is especially worrisome when it comes to new construction which may be delayed due to weather or other problems, and it can also be an issue if you’re buying a home but don’t yet have yours sold – but you need to in order to qualify.

Get yourself ready to lock-in at a low rate by getting the appraisal done early, providing all necessary paperwork to your lender, and staying in contact with your lender.

Once you get everything done and you feel comfortable with where the rates are today – be ready to act if rates drop to where you want them.

I spoke to one mortgage guy last week who said that rates dropped low but only for a few hours. He called up his clients and asked them if they wanted to lock (most did). A few said they wanted to think about or they wanted some additional information. By the time they were ready to make a decision, rates had already gone up again.