One of the most pressing issues when applying for a mortgage is when do I lock in my mortgage rate? Rates go up. Then rates go down. When is the right time to lock?
When it comes to “timing the market” the mortgage market is just like the stock market: “The odds that you will achieve long-term success by actively trading or timing the market round to zero” Morgan Housel. The reality is trying to time the market according to Warren Buffet is “Impossible and stupid.” Where does that leave us when applying for a mortgage?
There is no guarantee mortgage rates will get lower. The FOMC cut the Federal Fund Rates .75% over the past few meetings. Further rate reductions are forecasted, and mortgage rates increased. Those buyers who locked in before the FOMC Cut Rates got better rates than those buyers who waited until after the FOMC rate cut!
When looking to buy your new home it really comes down to do the numbers work for you? Are you comfortable with the proposed monthly payment? Can you qualify for the mortgage at the current interest rate? If you are shopping today and the answer to those questions are yes, then start your home buying process today. If you are worried about mortgage rates going up. Fidelity Direct Mortgage has a Lock and Shop Program that will lock your loan for up to 120-Days while you shop for your new home. We will “Float Down” your mortgage rate if mortgage rates improve.
The most popular mortgage program is a 30-Year Fixed Rate Mortgage. Many people think I should wait timing the market to get the very best rate since I will have this mortgage rate for 30-Years. The reality is you will not keep your mortgage for 30-Years. The average mortgage is held for 8-Years, but that time frame shrinks when rates change. When mortgage rates fall you can refinance to the lower rate. In fact, Fidelity Direct Mortgage will refinance your loan for free. No lender or title fees. While the 30-Year Fixed Rate Mortgage is the most popular, a mortgage is a fungible tool that will change as the market changes. You are not making a 30-Year commitment.
Success in determining when to lock is not timing the market, but when is the timing right for you.
Supply and Demand Matter:
If mortgage rates drop, more buyers will enter the market. Housing inventory has remained below levels needed to support the market demand. The good news demand has slowed thanks to increasing mortgage rates. What happens if mortgage rates drop? Potential buyers will flood the market. It will be like Back To The Future 2020! More buyers entering the market brings more competition, bidding wars, over asking price offers, appraisal waivers, home inspection waivers and anything else anxious buyers can offer.
This creates an interesting conundrum. You wait to get the best rate to get the best payment, but you end up paying more? When mortgage rates drop more buyers enter the market driving home prices higher. The lower mortgage payment you thought you would get is lost by the increase in the home prices.
The Law of Supply and Demand is immutable. When supply is not sufficient to meet demand prices increases. The housing supply is not going to increase. When demand increases prices will rise. The best strategy for buyers is get in early before prices increase!
The Longer You Wait The More Money You Lose!
I often let renters know they are actually paying a mortgage. The problem is they are not paying their mortgage. They are paying their landlord’s mortgage. Every rent payment made benefits their landlord.
Interest will rise and fall, but renting is always letting wealth escape:
The return on investment for rent is always zero!
The imputed interest rate for rent is 100%. 100% of the rent payment is applied to cost.
Rent does not build equity nor create wealth. Your new home will increase in value over time.
Renting does not offer stability. Rents will increase and your landlord may terminate your lease!
Every mortgage payment is an actual savings plan. You build equity with every mortgage payment.
To lock Or Not To Lock?
A Fidelity Direct Mortgage Professional can provide a complete analysis and make personalized recommendations based on your budge of the best mortgage options available for the purchase of your new home or refinance of your mortgage.
How much money does waiting cost? What is your monthly rent? Take the monthly rent and multiply it by 12. For example your monthly rent is $3,000.00. $3,000.00 x 12 = $36,000.00. That is $36,000.00 per year going directly to your landlord and not you. If you live there five years that Is $180,000.00. It really adds up fast. The reality is for a rent payment of $3,000.00 per month can buy you a home.
It is not just the $180,000.00 over five years paid to the benefit of your landlord. You miss out on the appreciation of your home. You miss out on the potential tax benefits. You miss out on the principle reduction of very payment creating equity. Every month you wait, more money is lost. A Fidelity Direct Mortgage Professional can provide a breakdown of the financial benefits of homeownership. If you a comfortable with the proposed mortgage payment, lock and find your new home!
A Mortgage Is A Flexible Tool!
The hidden in plain sight tool is the mortgage refinance. When mortgage rates drop you can take advantage refinancing your mortgage to a lower rate. If rates are going lower, should we wait until the market gets better? Remember a 30-Year mortgage is not necessarily a 30-Year commitment.
You can refinance now with the Fidelity Direct Mortgage Free Refinance Program reducing the total closing costs. This allows you to take advantage of small rate reductions. If mortgage rates improve again you can take advantage of the Fidelity Direct Mortgage Free Refinance Program to refinance again.
As the market fluctuates you can use the available tools to take advantage of favorable market conditions. In today’s economy every little bit helps. You do not have to wait until mortgage rates hit their lowest point. Given we really never know when rates will hit their lowest point the best strategy is to take advantage of small rate improvements step by step using the Fidelity Direct Mortgage Free Refinance Program. Contact your Fidelity Direct Mortgage Professional to start your refinance process so you are ready when the conditions are right.
A Fidelity Direct Mortgage Professional can provide a complete analysis and make personalized recommendations based on your budge of the best mortgage options available for the purchase of your new home or refinance of your mortgage.