Stay sharp and ready to pounce on a good mortgage rate
If you’re planning to buy a house sometime soon, it’s time to get familiar with mortgage rates. A mortgage rate is the amount of interest charged on a mortgage. Since most people finance their mortgage for 15 to 30 years, the cost of interest adds up quickly, which is why it’s important to ensure you’re getting the best mortgage rate possible.
But mortgage rates can change quickly—and sometimes significantly—which is why it’s essential to keep your eye on the prize when tracking the mortgage rate market.
1. Watch the Bond Market
One key fact is that bond prices and mortgage rates have an inverse relationship. That means that interest rates are up when bond prices are down, and vice versa.
Now, we know that unusual circumstances can arise that can cause the Federal Reserve to step in and adjust mortgage rates. Still, under day-to-day pricing conditions, the bond market is a resource for your local mortgage brokers. Monitor bond prices to see which way mortgage rates are trending.
2. Think Long Term
Rates can (and do) fluctuate every day. A 3.375 mortgage rate can quickly become a 4.037. It’s important to track these changes over time.
If you’re noticing some significant trending changes—meaning that rates keep inching higher or lower—it may be a sign that rates are swinging in one direction or another. To snag the best mortgage rate, keep tabs on these trends and research the long-term predictions of any changes.
3. Lock Into the Best Rate
Due to the market’s volatility, most loan lenders use rate locks. This tactic ensures that the rate you see when you submit your mortgage loan application is the rate you see when you sign your closing documents. Since some lenders can take 30 days or more to get from point A to point B, you’ll want to make sure you’re locking in when the rates are most favorable.
4. Remember That Rate Locks Work Both Ways
We know we just sang the praises of rate locks, but they can also come back to haunt you if the market conditions improve after you lock into a rate.
For example, if you lock into a rate of 4.037, but the rates drop when it’s time to close on your home, you (and your lender) are stuck with the higher original rate. When making your mortgage moves, keep the pros and cons of rate locks in mind.
5. Monitor the News
Almost every news broadcast devotes a bit of time to the state of the stock market. While the stock market isn’t directly connected to your mortgage rate, some red flags may indicate that rates are about to change.
If the stock market business is booming, it’s likely that interest rates will also be high, and vice versa. Keep tabs on the latest stock market news to determine the best time to lock in your mortgage rate. Luckily, there are many websites and smartphone apps available to track this kind of information.
6. Maintain Your Credit Score
While you can’t control the conditions that influence mortgage rate changes, you can take control over your credit score. Paying your bills on time, keeping your spending in check, and lowering your debts will allow you to access lower interest rates. Even when the rates are higher, you may be able to score a small discount if your credit is in above average condition.