Waiting to lock in a low rate could hurt you
Tyler Osby • Special to Juice • April 1, 2009
You’ve heard mortgage rates are falling. Currently dipping below 35-year lows, this is arguably the best time to purchase or refinance a home in history.
If you haven’t yet, it’s a really good time to consider re-evaluating your current mortgage plan. You could potentially save thousands.
The question is, are you waiting to lock in because you think rates are headed lower?
If you ask me if I think rates are headed lower, my response will be "possibly." However, there are a lot of moving parts in the background that impact your ability to even lock in a lower rate if it happens. Let’s take a minute and be less emotional about rates and logically look at what could happen.
A few reasons why holding out for lower mortgage rates could be a bad idea:
Banks could tighten guidelines. You’re pre-approved today. However, if a lender changes guidelines (sometimes overnight), you could lose your loan approval and have no course of action against them.
Your income could unexpectedly get cut. We’ve seen it happen already locally. If you’re approved today, and your income gets reduced tomorrow, you may no longer qualify for the loan you’re looking for.
You could unexpectedly lose your job. It’s a worst case scenario example, but it happens. The days of getting a mortgage without a job are gone.
The value of your home could decrease. Appraisals play a big part of any refinance. If a house down your street is a foreclosure that sells for a huge discount, it will impact the value of your home. If your home can’t appraise, you can’t refinance.
Your credit score could fall. Behind the scenes, your credit score changes every day. So your credit score could fall, resulting in a higher rate or even worse, disqualifying you from being able to refinance. With credit card companies reducing credit limits, this is a very real concern.
You could get sick or injured. Think of the unexpected medical expenses that would come up. Health issues are one of the top causes for bankruptcies and foreclosures. Nobody ever expects to get sick.
Your home could get damaged in a storm. It’s Iowa, and it’s a real problem. If the wind blows your shingles or siding off, you’ll have to repair it before you can get a new mortgage.
Instead of rates decreasing, they could increase. If you’re waiting for 4 percent and watch rates climb over 5 percent, you’re going to miss out on a chance to lock in a loan that will save you hundreds, over the goal of trying to save an additional $50. In uncertain times, many homeowners are looking at ways to reduce their expenses and save some cash. If this is your motivation, you need to consider life’s curve balls before holding off on locking what your parents would say are bargain basement interest rates.
Remember, there is much more to the mortgage process than just rates.
For the most current real estate and mortgage news, visit Tyler’s blog at wealthwithmortgage.com or e-mail him at tyler@tylerosbyteam.com.
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Tyler Osby, 24, is a certified mortgage planner and wealth creation specialist at Four Legacies Mortgage in West Des Moines. He’ll answer your questions about everything from personal and home finance to credit scoring and investing every other week in Juice. Send questions to Tyler@TylerOsbyTeam.com.
