Winning or losing - How to play the Mortgage Interest Rate Game

St Paul, MN: Mortgage interest rates -- just like stock prices -- change price daily and you can win big or lose big if you don't know what you are doing.

Quote, Float, or Lock?

For the home buyer that is "shopping" for a mortgage, or waiting for rates to fall, or just "hasn't gotten around to it", we suggest you almost always lock, and to do it quickly. The sooner you lock your rate, the less chance you have of losing in the Mortgage Rate game.

If you are refinancing, you can gamble a bit more, but if you have a signed purchase contract in hand, lock your rate as soon as possible. There is no better way to protect yourself from the fickle mortgage markets. Holding out for 1/8th - 1/4% more is just not worth the risk! If you want to gamble... go to Vegas.

What is a Rate QUOTE? When buying a home or refinancing, it is common to call around to many lenders to get a rate quote. A quote is not a guaranteed rate. Another common issue with getting a quote is you often get one from Lender A on Monday, Lender B on Tuesday, and Lender C on Wednesday. Rates can change daily, sometimes multiple times, so unless you get all your quotes at the same time, you don't have accurate information. THE ONLY QUOTE THAT MATTERS IS THE DAY YOU LOCK. Many lenders quote you low to get you to stop shopping, knowing that you will usually NOT be locking the same day of the quote - especially for any purchase loans. Be wary of anyone significantly lower than anyone else.

What is a Rate Lock Period? The lender will usually quote rates along with a rate lock period, usually 15, 45, or 60 days. The loan must close within this period. The longer the rate period, the higher the interest rate.

What is a Rate Lock? When you "LOCK" your interest rate with your lender, you and the lender agree this is the guaranteed rate you will receive, and that no matter what the markets do before closing, you will not be charged a higher rate if rates go up, and you will not be able to get a lower rate if rates go down. Your rate lock should be in writing.

What Does It Mean to Float? Floating your rate means means that while your loan is in progress, the rate is NOT yet guaranteed. You are taking the risk that interest rates will either not go up or that they will fall. If rates have been dropping, then you might want to take a chance that rates will be lower by the time you close your loan than they are today. Discuss the floating with your Loan Officer. Sometimes it is worth the gamble, sometimes it isn't. For example, holding out for .125% lower rate, but that equals only $8.00 a month in payment is not a very smart move.