When to lock that mortgage rate: the perfect strategy

Nobody knows where interest rates are headed. Nobody. No one knows about tomorrow or next week and certainly not for the next 30 days. If someone does tell you that they know where rates are headed you need simply do nothing more than politely nod your head as they gibber. But there is a fail-safe strategy that works every time.

Remember that mortgage rate quotes are absolutely no good until you, the borrower, instruct your loan officer or lender that you want to "lock in" or otherwise guarantee your interest rate for as long as it takes to close your deal. Rates can go up or they can go down over the course of a week. Heck, they can even change throughout the course of a day. Especially so with all the stock and bond market volatility we've witnessed over the past few months. So, do you lock or not lock? That's the question.

The strategy is really quite simple. Tell yourself that whatever you decide, to lock today or wait, you will have made the wrong decision. That's right; the wrong one. Next ask yourself, "Which way would I rather be wrong?" If you locked in the initial rate you were quoted -and apparently happy with when you selected your lender- and rates in fact moved lower, well, you didn't get the lowest rate but you got one you were happy with. If you decided that you wanted to wait a few more days to lock in and rates moved up then you would be paying for that mistake in the form of higher payments each and every month. 360 months in fact if you took a 30 year mortgage to term. Worse yet, you decided not to lock and rates moved up so high that you could no longer qualify and you lost the house.

Now...which way would you rather be wrong? Hmmm?

David Reed, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. He is President of CD REED Mortgage Bankers.

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