On Lockdown

When Is the Time to Lock Your Interest Rates?

This might surprise many readers right now, but after a couple of amazing years of decreasing interest rates on home loans — we just keep saying “They won’t go lower than that,” only to have rates do exactly that — we are right now in a “rising-rate environment.” For the first time in a long time, rates are starting to go up, not down. And that has a lot of borrowers second-guessing the rate being offered to them on any given day, which means people are waiting, gambling, and stressing themselves out over something that I don’t believe is worth it for most homebuyers.

Look, I do understand. It’s hard to swallow a 3% interest rate this week when it was 2.75% just nine days ago! Furthermore, it’s easy to say, “Well, I’m going to wait a few days and see what happens — I bet the rates will go lower again, and I should really make sure before I lock them in.” Meanwhile, their closing date creeps closer and closer, and they still don’t have rates locked in. 

Why is this a bad idea?

The biggest reason is that in a rising-rate environment, rates today will generally be lower than rates tomorrow. I’d liken this to playing the house when you play blackjack. You might win a hand or two, but if you sit there for long enough, the house will start winning. It might not win in every instance, but averaged out over a period of time, the house makes money — and everyone else loses it.

With interest rates, it’s the same situation. Rates last week might have been 2.75%, and they might reach that low next week, too. But we’ve seen rates rise consistently for a while now, long enough to know that the long-term “lowering rates” trend of the past few years has played out, at least for the moment. So, while waiting to lock in your rate until it drops back to 2.75% might work, odds are that the rate will actually go up in that time period, not down.

Again, I get it. Closing on a house at a 3% rate when your buddy just got 2.6% last month seems like bitter medicine. But is it as bitter as waiting, only to discover that rates have gone up?

That is the question we really need to ask: What happens if, instead of dropping, rates go up? Are we going to keep waiting and let that closing date draw ever closer? Next week, you could be sitting at your desk, head in your hands, asking yourself why you didn’t close on 3% when you had the chance. I wish I could tell you that this doesn’t happen, but then I’d be lying to you — and as the expert you ask to help you with your mortgage, that’s not what I want to do. Instead, I want to give you some helpful advice that will make things easier on you as you close and maybe leave you with some peace of mind, instead of leaving you second-guessing if the rates will go up or down.

So, here’s what I would do: If I were buying a house in today’s market, and I was happy with everything else about a home that I had found, I would lock in the interest rate as soon as I could. "If you like it, lock it" is one of our mottos.

It’s easy to forget that a 3%–4% interest rate is historically low; anything under 3% is phenomenal. Four years ago, you’d never have considered “holding out” for a 2.75% rate! A lot of things have changed in that time, but that one hasn’t. Instead of focusing on the rate, focus on finding the right house, in the right neighborhood, and borrowing from the right lender. Far more important than your interest rate is whether or not you can make the monthly payments and whether or not you are going to be sitting in a house that you end up disliking. Those are all things that you have control over. The interest rate is like the stock market or the weather. Maybe someone out there can predict what will happen, but it won’t be me or you. 

Some borrowers won't take this advice, and that’s okay, too. Just make sure that you let your loan officer know you’re going to roll the dice and go ahead and pick their brain on what they think the rate will do. They’ll have a better idea, and they can also counsel you from their large pools of experience. But don’t be surprised if they say the same thing that I am, because like the stock market and the weather, the mortgage rate is controlled by outside forces that we can barely predict, nevermind influence. For an example of that, look at 2020 — at this point, we’re all familiar with forces like those!

Homebuying can be a stressful experience, but it should also be a rewarding time. Don’t hurt yourself waiting for a rate drop that may never happen. Instead, search for the house you love, find a borrower you can work with, and let providence take care of the rest. Enjoy the process, if you can, and no matter what — don’t make it any harder than it has to be. If you like it, lock it and don’t think twice about it.

If you have any questions about rate drops, rate increases, or anything else, give us a call at 239-437-4278.