Should I Lock My Mortgage Rate?

Should I lock my mortgage rate and how does a lock work?

2 Answers

Whether or not you should lock a mortgage rate can depend on several factors.

Let's first talk about what it means to lock a loan. In general, there are a couple stages at which a loan might be locked. The first is an agreement between you and your mortgage broker (unless they are a direct representative for the bank). This lock is usually as good as the broker's word and must be disclosed as such.

Unless you have an actual " Lock Confirmation" generated by the lender who will be funding your loan, you do not have a guaranteed access to that particular rate. Furthermore, in many cases, loans can be locked with lenders even if they are not actually approved. In this manner, Jane Doe could request a rate lock with XYZ lender and the broker could lock that rate at XYZ. However, if XYZ denies the file for whatever reason, the borrowers file would have to go to a different lender, and it would be subject to whatever the current pricing is at the new lender.

When a loan officer (LO) actually locks a loan, its a bigger deal than you might think. The LO has to fill out a form, online, or verbally with a lender's lock department, and provide several pieces of information. The lender, at that point, is actually accounting for the loan being funded at that interest rate in their "future business." If the LO were to just " safety lock" (lock and then do the deal elsewhere if rates get better), it can seriously damage an LO's relationships with their wholesalers.

Because of this, the lock process should be taken seriously by all parties involved. Ask your LO to educate you on the market forces that are affecting mortgage rates right now. Then you can decide together when it is time to lock.

A great resource to know about mortgage rates and whether it is a good time to lock or not is a daily rate commentary.

If it looks like rates are low enough to meet your payment goals, you should lock. You should always lock if you are happy with the rate as you never know what the market will do tomorrow.

Please email me if you'd like any clarification to this response.

The Federal Reserve Board has kept mortgage rates low for the last year under their mortgage backed securities purchase program.  They have been buying mortgage backed securities by the billions keeping the price of these bonds high, and yields low in order to keep mortgage rates low. 

Timing a lock for maximum benefit at that time was more difficult as pricing on Fannie Mae and Ginnie Mae Mortgage Backed Securities were in part determined by the Feds action in that market, and comments on future actions. 

This program is ending in less than 2 weeks and at that time 1.25 Trillion dollars will have been spent soley on keeping mortgage rates artificially low.  The majority of economists and financial firms on wall street are expecting rates to rise. 

The Feds have indicated in their most recent FOMC meetings that they will definitely end this program at it's scheduled end date.  Pricing worsened last week by 1 point and I look for pricing to continue to worsen as we get into the spring and summer season where demand for mortgage financing will increase, and rates also move up as a result of increased demand. 

Locking at this point is prudent as risk has now shifted to an increase in mortgage rates vs. a potential downturn in rates during 4th quarter 2009.