Interest rates have gone nowhere but UP for the past 3+ weeks. For home buyers still shopping around for the best deal, it’s like watching a nightmare unfold. Remember those 3.5% 30-year fixed rates? They’re gone!
Rates went to 3.625%, then 3.75%, then skipped right over 3.875% and landed on 4%, now up to 4.125%.
In some scenarios, it makes sense to buy down your rate to 3.75%, but you must do the math first. If the buy down is too expensive, reject it and take the 4.125%.
How to Check Your Buy Down Option
Look at the principal-and-interest payment using both interest rates.
Subtract to get the monthly savings.
Divide the monthly savings into the cost of the buy down.
This is the number of months it will take to break even. If you’ll break even in two years or less, I think it makes sense. If it’s taking five years or more to break even, I would not even consider it.
Get Your Written Rate Lock Confirmation!
You cannot lock in an interest rate until you have a mutually signed Purchase & Sale Agreement. This is because rate locks are tied to a specific property address. But once you have one, speak with your loan officer about locking in. If you are floating your rate (not locked), then you need to communicate with your loan officer every morning on where rates are at.
When locked, get it in writing. No exceptions.
I just heard from a home buyer, closing in 20 days, who believed his rate was locked in at 3.5%. Then he got a call from his loan officer…
“The bond market is going crazy. I suggest locking in. I can get you at 4% today,” he said.
“WHAT?!!! I thought I was locked at 3.5%.”
“No, you were floating,” he said.
My question is, what was the loan officer doing while the 3.5% rate was going to 3.625% and then to 3.75%? Why did he wait until rates went all the way to 4% to call his client? That is gross neglect, in my book. I suggested to the home owner that he call the manager and speak about this situation. Problem was, the loan officer was the manager!
Assume nothing. That is rule #1 in the mortgage game. You must get your rate lock confirmation in writing.
Where Do Rates Go From Here?
No one knows. No one was predicting the volatility we’re in now. Experts were saying, “The Feds are keeping rates low for the rest of the year.” It made sense. We need low rates to continue to support economic growth. Everyone thought rates would continue on at about the 3.5% level…right up until the sharpest rise in over 10 years. No one has a crystal ball that says where rates will go.
I’ve said it before, and I’ll say it again: If you see a rate you like, lock in and be happy.
Note to esteemed real estate agents: If your clients are taking their time house shopping, pass on this information to them. They need to know that the longer they wait, the higher the risk they’re taking of getting that cheaper monthly payment with a low-low rate.