Copilot Advice

Picking the Right Time to Lock In Your Mortgage Rate

Last Updated: 10/14/2021

Have you seen mortgage interest rates lately? They’ve gone from low to historically low and then back again to low. But how do you know when is the right time to pull the trigger to lock in a low rate on a house purchase or a mortgage refinance? And with so many mortgage lenders out there, which one is the best for you to go with? You can save a boat load of money over the long run by choosing the right mortgage from the right lender. While Moneycopilot, LLC can help with evaluating any of the factors that go into picking the right mortgage and lender for your needs, when it comes to the right time to pull the trigger with all else being equal, you would be wise to pay attention to the performance of the stock market.

While not all lenders follow this practice, there are a number of lenders who practice dynamic pricing for the money that they lend. Put simply, that means that they will lend you money at an interest rate that is based on how cheaply they can get money themselves from the financial markets on that day. When the stock market is up, money to support longer term financial commitments like mortgages is less available because people and institutions are typically putting more of their money in the rising stock market. When the stock market is down, the reverse is true. Money to support longer term financial commitments like mortgages is more available because people and institutions are typically putting less of their money in the declining stock market. When you look at it this way, you can see the connection between the supply and demand of cheap money.

When cheap money is more available, the cost to lenders for that cheap money is less. In many of those situations, people and institutions are scared of the losses in the stock market and are therefore willing to put their money into longer term financial commitments that will produce lower but more consistent returns. For those who are paying attention, here is the key to knowing the right time to lock in a low rate. Wait until the money is cheap! That translates into "Watch the stock market and wait until it is down and mortgage money is cheaper as a result." Of course, no one can predict how the stock market will perform on any given day, waiting too long for anything can cause you to miss out, and there is no guarantee that the stock market won't go even lower in the future. But you can use the times when the stock market is closed, but lenders are not closed to your advantage.

Let's assume that you've already done the work to build your credit score up above 740 for access to the lowest interest rates available from each of your target lenders. From the time that you decide that purchasing or refinancing will be a good idea that you're committed to, unlock your credit and gather all the necessary documentation and funds that you will need to be ready to lock in your interest rate. You want to be able to move quickly when it is time to pull the trigger. Then consider the following.

1. Start paying attention to the interest rates and associated fees of at least 3 mortgage lenders that you're comfortable with. Hopefully, you have enough lead time (preferably a 2 week to 30 day time period) before you have to make a decision to lock in with any given lender.

2. At the same time, start paying more attention to the general performance of the stock market as reported on your preferred news source. The Dow Jones Industrial Average (DJIA) and the Standard & Poor's 500 (S&P 500) are good stock market indicators to follow.

3. If the stock market is up compared to most other days that you've been keeping track of on a Friday after the closing bell, it is likely not a good time to lock in a low interest rate with a good lender.

4. If the stock market is down compared to most other days that you've been keeping track of on a Friday after the closing bell, that weekend and possibly the following Monday are likely good options for locking in a low interest rate with a good lender.

While not foolproof, following the approach described above tends to result in slightly lower interest rates being available to you for fewer lender points and fees compared to many of the days before. The available APRs to choose from tend to be more favorable allowing the money that you spend to close the loan with the lender to go a little further. Think along the lines of paying $10,000 in total closing costs for a 30 year mortgage at 3.25% versus paying closer to $6,000 for the same 30 year mortgage at 3.25%. Which deal would you prefer to take? Sometimes, it may even make sense to consider paying lender points to be able to get a lower interest rate at what would be considered a discount. But that is a story for another time.

Customers of Moneycopilot, LLC benefit from this and other Copilot Advice as well as proven strategies to improve their credit scores into the 700s, pay down unhelpful debt, establish savings where none seemed possible before, and be more strategic with how their money supports goals that help them live a better life. Anyone who is facing challenges getting positive results from managing their finances on their own can benefit from our services and we are happy to help. If you need assistance with improving your financial health or daily money management in general, we are at your service and you can start your journey today. Your wallet will thank you!

Next Copilot Advice: The Barber, $21K, and the Quest for a New House

**Moneycopilot, LLC is a member firm of the American Association of Daily Money Managers (AADMM) in good standing.**

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