When do you lock Your Mortgage Interest Rates?
You
know when rates have hit bottom AFTER they
start rising. Deciding when to lock your
rate is a bit like gambling--you want luck
on your side!
You must lock your rate prior to
closing your loan. To help determine when to lock,
consider the rate trend. When rates are falling,
wait until the last possible moment to lock your
rate. When rates are rising, lock your rate as soon
as possible.
In either case, you're basing your decision
on something unknown--the future. Rate trends change
quickly and interest rates usually change daily.
Here are just a few of the factors affecting interest
rates:
New economic data. Supply and demand of debt.
Example: The U.S. government sells 30-year bonds;
the supply of bonds increases; an increased supply
of bonds at a given level of demand causes the
price of bonds to fall; falling bond prices create
increasing bond interest rates.
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 Mortgage Sections |
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Conversely, when
the demand for bonds increases at a given level
of supply; the increased demand bids up the price
of bonds, resulting in lower rates. Inflation.
Actual or expected higher inflation causes rates
to climb. When inflation is on the rise, the
Federal Reserve Board raises rates to curb inflation.
Political news and world events. A war in the
Middle East could cause higher oil prices and
inflation.
Market sentiment.Bond rates and prices vary inversely--i.e.,
when bond prices rise, interest rates fall and vice
versa. The 30-year bond is one of the most relevant
rates to track, but the yield of mortgage-backed
securities is more important.
The supply and demand
for mortgage securities may be different from 30
year bonds. There are times when bond prices move
higher and mortgage security prices move lower.If
you want to follow interest rates, consider the following:
- Find out all the economic news
being released over the next two weeks. Make
a list of news that is most important to interest
rates--inflation, industrial production, etc.
Follow bond- or mortgage-backed prices on a daily
basis. These rates influence mortgage rates.
Follow mortgage interest rates on a daily basis.
Bookmark web sites or obtain rates via e-mail.
- In general, Fridays and three-day
weekends are bad for interest rates. This is because
traders hate uncertainty. In many cases, traders
close out positions before a weekend, which often
means that they have to sell bonds which causes
rates to go up.
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