Locking in a low mortgage rate
Posted on Monday, March 28, 2016 at 11:27:48 AM
In the face of global uncertainty and the Federal Reserve's announcement last week that it was lowering its economic forecasts - though it kept future rate increases on the table - mortgage rates have reversed course for the first time in a month. According to Freddie Mac's most recent Primary Mortgage Market Survey, the 30-year fixed-rate mortgage is averaging 3.71 percent.
With the housing market moving into the spring buying season, these lower mortgage rates are only going to improve affordability. Purchasing a home is one of the biggest financial decisions a person can make, and it's understandable that many would hesitate to apply for residential financing until the moment seemed right. That said, it's time to stop floating mortgage loan interest rates on the chance that the numbers may slip further. Now is the time to lock in your rate.
A lock agreement is an assurance between you and your lender that the number of days for which a loan's interest rate and points are guaranteed is protected from alteration. Even if rates were to rise in the protected period, your mortgage rate would stay the same. The opposite holds true as well. If rates were to fall in the guaranteed time frame, you would still pay what was originally agreed upon.
Locking the interest rate isn't required. Some buyers prefer to trust that rates will continue to fall (even if the market suggests otherwise). Most, however, prefer the security of knowing that their loan won't rise out of reach just because interest rates climb before the loan closes.
With the Fed hiking the benchmark rate in December, and leaving the possibility of additional increases in play for 2016, it seems an unnecessary risk to hedge your bets. Better to lock in your rate now, while the average mortgage rate remains low.