|
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:
-
New economic data.
-
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.
-
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.
-
Political news and world events. A war in the
Middle East could cause higher oil prices and inflation.
-
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:
-
Find out all the economic news being released
over the next two weeks.
-
Make a list of news that is most important to
interest rates--inflation, industrial production, etc.
-
Follow bond- or mortgage-backed prices on a
daily basis. These rates influence mortgage rates.
-
Follow mortgage interest rates on a daily
basis. Bookmark web sites or obtain rates via e-mail.
-
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.
|
