Would you advise locking in a mortgage interest rate today or floating it? Where do you think rates are headed
Question by Andy: Would you advise locking in a mortgage interest rate today or floating it? Where do you think rates are headed
Best answer:
Answer by Jay J
Lock it in at around 6.75%. Rates will probably go up, cant go down much.
Know better? Leave your own answer in the comments!
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It depends on what you are looking for in an interest rate, but if you think they are going to drop in the coming few months then you will not be successful.
I would lock the rate and advise any client I had to do the same.
I hope this has been of some use to you, good luck.
“FIGHT ON”
The most important issue is how long you expect to stay in the house. The average home loan lasts 7 years, by the way, but your situation the key. If you think you’re likely to have the loan for 3 years, for instance, then you’ll do better to get a floating rate loan, because it will start out lower and probably won’t adjust before you leave. Get some quotes and look at how the floating rates work.
I don’t know current rates, so I’m just going to show you how to do the analysis, pretending that the current rate for a floating rate is 3% and a fixed rate is 4.5%. So, if the floating rate is at 3% and can’t go up any more than 2% each time it adjusts, and it can adjust every 3 years, then you know that you’re in good shape if you move before it adjusts.
If you think you’ll stay beyond the first adjustment, then it would be 5% for the next three years. So, if you think you won’t be there longer than 5 years total, you’d have an average rate of 3.6%. This is how you do the math: 3% x 3 years = 9%, 5% x 2 years = 10%. 9% + 10% = 18%, divided by 5 years, = 3.6% average rate over 5 years. Now compare that with the fixed of 4.5% and, with these rates, you’re still better off with the floating. Then you can play with this and find out how long you can have the floating rate loan before it is as high, on average, as the fixed rate.
Finally, you have to make sure that you’re dealing with apples vs. apples on other items like closing costs, points, etc. Your lender should be able to help you with this analysis if you show them this and ask. But don’t count on getting this analysis from your lender. They may or may not think this way, and their incentives may not be such that they care to provide such an analysis.
Finally, don’t count on correctly guessing when/if interest rates are going to change, or how they’ll change. It can’t be done. But that said, if you do want to guess, assume they’ll go up. Why? 2 reasons: if you guess wrong and they go down, you won’t be hurt as badly as the opposite direction. The other reason to guess high is that we’re at war, Washington is spending money like never before and giving tax cuts, which leads to the need to borrow more or print more money…ending up in higher interest rates.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Float if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
Mortgagecommentary.com is a good resource if you’re unsure about locking or floating. It’ll give you guidance as to where the markets are headed then give you a recomendation.