What to do if you missed locking in a mortgage rate at less than 5 percent

06.12.09
By Randy Johnson

I suspect that there are several million people who wanted loans at less than 5 percent who are kicking themselves because of the recent jump in rates. To set the record straight, mortgage loan rates were between 4.5 percent and 5 percent since the first of the year – until last week, when rates jumped back up. I suppose you could say they skyrocketed from 4.75 percent to 5.75 percent.

So if you have a loan at over 6 percent and were hoping to refinance into something under 5 percent, the train has left the station. It is no longer attractive to refinance. So what do you do?

First, I want to encourage you to examine the reasons why you didn’t make the move already. After all, rates have been low for over five months. You had plenty of opportunity. If you sat on the sidelines waiting, you ought to question what it is that made you do that. Fear that your house wouldn’t appraise? Credit score fears? Too busy?

The first fear is real but it isn’t getting any better, folks. Better do it earlier than later. As to credit, it is so easy to check your credit standing, including getting your scores. You ought to be doing that on a regular basis anyway. So that’s not really an excuse either.

Were you too busy/did you procrastinate? Some people think that they are bulletproof and that the market will wait for them. Sorry – the mortgage market does not care about you any more than the stock market cares about you. It is independent and will just as likely crush you as bless you. We’ll get back to this.  

Now, let’s clear the air: I don’t know where rates are headed. Maybe higher. Maybe lower. I don’t know, and it is not important. The rates have been pretty volatile for the 28 years I have been in the business and I believe that they will continue to fluctuate. What does that mean?

Rates may stay the same or move higher for the rest of the year. The bond market is certainly saying so. (Please see "What happened to mortgage rates?" for some of those reasons.) If that is the case, you can forget about refinancing. It will make no sense.

The other possibility is that rates will move lower in the short-term, meaning in the next few months. Why? Well, the government is committed to restoring a healthy housing industry. I believe that can be better accomplished with rates a bit lower than they are right now. We will see if they take any action to make that happen.

The important thing is that you want to be ready to capitalize on the opportunity when and if rates do fall again. You don’t want to be sitting on the sidelines the second time around. You can see now the penalty you are paying for missing the opportunity that existed all year long.  

What being ready means is applying for a loan with the lender of your choice. The choice of lender is important. But let’s be realistic: Even if you had gone with a bad lender two months ago, you would have gotten a much better deal than you can get today. Right?

So choose a lender and get your application in. Pay for an appraisal. Yes, that is likely to be $400, but if you are talking about saving $4,000 per year in interest, what’s $400? Not only that, you will be able to lock in on a 10-day lock if your loan has been approved. That is likely $400 cheaper than a 30-day lock. Doing the application will only be a waste of money if you never end up funding your loan.

If the market turns friendly again, it still will not be because it cares about you. But this time you’ll be able to get on the train before it leaves the station.

A final note to homebuyers: It does not make much difference that rates have gone up. Sure, it would have been nice to get a 4.75 percent loan, but if you can buy a home for a price that is $100,000 cheaper than it was a few years ago, those savings are far, far more important. Look at it this way: When you calculate how much you’d pay with the slightly higher rate, it’s not nearly as much when you consider that there is $100,000 that you don’t have to pay back!

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Even though interest rates are no longer under 5 percent, the super low housing prices still make it a great time to buy.