A Common Mortgage Rate Tale
They explain that you can lock in your interest rate today so it won’t change, or you can float and take your chances on rates going even lower before you close.
You decide you don’t want to lock just yet because rates just seem to be moving lower and lower.
Then you wake up to stock rally after stock rally, which puts you in a good mood because your stocks are making you rich, at least on paper.
You decide it’s time to lock and call your lender to dial in that 2.75% rate on the 30-year fixed you were quoted last week.
No sense in taking any chances, right? It’s probably best not to get greedy and just go with a rate of 2.75% you can enjoy until the year 2051!
It’s a very low rate and dreams of a sub-2% 30-year fixed-rate mortgage are probably just dreams and nothing more.
Here Comes the Not Good Surprise
The loan officer picks up the phone and you tell her you want to move ahead with what was quoted last Thursday.
Well guess what? Your low rate isn’t so low anymore. Yep. Rates went up since last week and because you chose not to lock, you’re now stuck with a higher rate.
No, the lender isn’t pulling a bait and switch, they aren’t playing any games. It’s just how it works. Much like stocks and other securities, mortgage rates fluctuate daily with the market.
You can’t buy Tesla stock today at last week’s price because you saw a ticker quote and liked it. You’re at the mercy of whatever it’s going for now.
Like stocks, mortgage rates can move up, down, or sideways on any given day. And when markets are active you better believe your unlocked mortgage rate will be too.
For much of 2021, we’ve seen mortgage rates trend lower until the last few days, when the Fed indicated a willingness to taper its purchases of mortgage-backed securities (MBS).
That sent the bellwether 10-year bond yield up about .25% from 1.30 to 1.55, which is generally bad news for long-term fixed mortgage rates.
As a result, mortgage interest rates have indeed been rising. Unfortunately, not many folks like rising rates.
Those who locked last week are probably pretty happy seeing that they’ve now got what appears to be a below-market rate.
Conversely, the folks who speculated (yes, you’re a speculator if you float your rate) are kicking themselves for looking a gift horse in the mouth.
It’s Not Too Late to Get That Low Mortgage Rate
But before we get all panic stations, let’s calm down.
It’s not too late to get the originally quoted rate, or even better. Just because mortgage rates are higher today doesn’t mean they won’t be lower tomorrow or the next day.
That’s the beauty of mortgage rates. Ultimately, they can rise and fall, just like the stock market. And if you happen to time the market right you can cash in with a lower rate.
While there was some uncertainty about when the Fed would slow its MBS purchases, the writing was mostly on the wall.
And there are still catalysts out there that could send mortgage rates the other way, like COVID. We are about to enter fall and winter…
Oh, and the Evergrande debt crisis in China rattled global markets just a week ago, before settling down. But could there be more to come?
There’s also another looming debt ceiling and potential government shutdown to worry about.
Negative economic events (and societal ones) have the ability to push rates lower, and there are lots of possibilities on the table.
That could mean a return to those lower rates you may have been quoted last week.
It Might Take a While for Rates to Settle Down Again
The frustrating thing is mortgage rates often take longer to drop than they do to rise, like the prices of most things.
Lenders seem happy to increase them if the economy is looking up, but are cautious in lowering them in case they get caught out by another bit of unexpected news.
That means the recent damage could take time to unwind. And you might not have time depending on your closing date.
There’s also a chance rates will continue to rise as more positive economic news surfaces. So today’s rates may not look too bad (in hindsight) if rates are even higher next week.
And you don’t want to get stuck playing the waiting game as your closing day inches nearer and nearer.
While you could have locked in 2.75% last week, and 3% today, it’s still better than 3.5% tomorrow.