When Do You Lock?

You know when rates have hit bottom AFTER they start rising. Deciding when to lock your rate is a bit like gambling--you want luck on your side!

You must lock your rate prior to closing your loan. To help determine when to lock, consider the rate trend. When rates are falling, wait until the last possible moment to lock your rate. When rates are rising, lock your rate as soon as possible. In either case, you're basing your decision on something unknown--the future. Rate trends change quickly and interest rates usually change daily. Here are just a few of the factors affecting interest rates:

1. New economic data.
2. Supply and demand of debt. Example: The U.S. government sells 30-year bonds; the supply of bonds increases; an increased supply of bonds at a given level of demand causes the price of bonds to fall; falling bond prices create increasing bond interest rates. Conversely, when the demand for bonds increases at a given level of supply; the increased demand bids up the price of bonds, resulting in lower rates.
3. Inflation. Actual or expected higher inflation causes rates to climb. When inflation is on the rise, the Federal Reserve Board raises rates to curb inflation.
4. Political news and world events. A war in the Middle East could cause higher oil prices and inflation.
5. Market sentiment.

Bond rates and prices vary inversely--i.e., when bond prices rise, interest rates fall and vice versa. The 30-year bond is one of the most relevant rates to track, but the yield of mortgage-backed securities is more important. The supply and demand for mortgage securities may be different from 30 year bonds. There are times when bond prices move higher and mortgage security prices move lower.

If you want to follow interest rates, consider the following:

1. Find out all the economic news being released over the next two weeks.
2. Make a list of news that is most important to interest rates--inflation, industrial production, etc.
3. Follow bond- or mortgage-backed prices on a daily basis. These rates influence mortgage rates.
4. Follow mortgage interest rates on a daily basis. Bookmark web sites or obtain rates via e-mail.
5. In general, Fridays and three-day weekends are bad for interest rates. This is because traders hate uncertainty. In many cases, traders close out positions before a weekend, which often means that they have to sell bonds which causes rates to go up.