When Is The “Perfect” Time To Lock Your Mortgage Rate?

Erik J. Martin
The Mortgage Reports contributor

Know How To Recognize A Good Mortgage Rate

Mortgage lenders are often asked if there is a best time of day, day of the week, or period of the year when a prospective borrower should lock in a mortgage interest rate.

The truth is, no one can tell with any degree of accuracy what rates will do.

In fact, the best time to lock a mortgage is when the unexpected happens.

Case in point: Brexit.

In June 2016, Britain voted to exit the European Union. “Brexit,” as it is known, caused an international “flight to quality,” meaning investors worldwide sought perceived safe assets like U.S. mortgage bonds. Mortgage rates fell dramatically.

These unforeseen shifts are the best time to lock a mortgage. But what if you’re not fortunate enough to be rate shopping during a period of mortgage rate upheaval?

Then, you go into the process knowing how to recognize a good rate, and being ready to lock it in.

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Locking The Perfect Rate Is Like Hitting A Moving Target

Purchasing a home could be the most impactful financial decision you will make in your life. You want to capitalize on the lowest possible rate.

In an ideal world, you would know when to pull the trigger on a rate lock with perfect timing — assured in the knowledge that rates have hit their relative lowest point. But with interest rates subject to change daily and even hourly, choosing the right time to pull the trigger on a rate lock can be difficult.

This is a matter best discussed with an experienced mortgage expert who can review your unique situation and suggest relevant options. There are certain dates on the calendar and other factors that can help guide your decision.

But first it’s important to understand how rate locks work.

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Understanding The Rate Lock

A rate lock guarantees your interest rate for a particular time span — typically between 10 and 60 days. Longer locks are more expensive.

This cost is typically in the form of “points.” One point is equivalent to 1% of the loan amount. The more points you pay, the lower your rate can be. The lender can typically roll the cost into the new loan.

With a rate lock, you are safeguarded from rates rising. For example, you lock in for 60 days at 3.75 percent. Rates creep up to four percent half way through your lock period. You are still entitled to your original rate.

What If Rates Drop During My Lock?

It’s not uncommon for rates to drop after you lock. You do have a few options in this case.

First, you can keep your locked rate. It may not be worth trying to renegotiate your lock over a small rate reduction.

However, if rates drop dramatically during that period, you might be able to take advantage of new, lower rates with one of the following strategies.

  • Using a “float down”
  • Locking with a different lender

The “float down” option — offered by many lenders for a fee — allows you to reset your lock to a lower rate. Rates must drop fairly significantly during your rate lock period.

Because many lenders won’t let you renegotiate your lock when rates drop, you may find it in your best interest to shop around and lock in at another lender.

This can be difficult and awkward when your current lender has already put time into your mortgage application; but it could be worth it to cut your rate, for example, by 25 basis points (0.25%) or more.

As far as timing, choose the length of your lock wisely.

If your loan fails to get through the process in this time frame, you’ll forfeit that locked-in rate. Consequently, many experts recommend locking in after you sign a purchase agreement for a home purchase, although you can typically lock in any time after you’ve been pre-approved for a mortgage.

For a refinance, lock in when you’ve received an estimate about how long it will take to close your loan.

For added peace of mind, you may be able to choose a longer duration — such as a 90-day lock — but lenders typically assess large fees for extended locks.

“It can be worthwhile to lock in your loan payment and ensure, if the rates were to go up, that an increase in your payment is not the reason you aren’t approved,” says J. Keith Baker, a mortgage banking professor at Irving, Texas-based North Lake College.

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The Challenge Of Perfect Timing

Ask the experts for their recommendation on a preferred day of the week or time of the year to lock in a rate and you’re likely to get a variety of differing responses.

“What we always find is that the end of the week is typically better than the first half of the week to rate lock because the market has had all week to digest information,” says Bill Dallas, co-founder/CEO of Cloudvirga in Irvine, Calif., who suggests locking in on Fridays.

On the other hand, data suggests that mortgage rates are most stable on Mondays versus Wednesdays and Fridays, when rates are most skittish — per research from mortgage market analysis website MBSQuoteline.

Amy Tierce, regional vice president for Wintrust Mortgage in Needham, Mass., says some small community banks reset their interest rates on Tuesdays. “But for the most part, mortgage interest rates are subject to change daily and can change intra-day in response to market movement,” she says.

For these and other reasons, Robert Johnson, president/CEO of The American College of Financial Services in Bryn Mawr, Pa., believes trying to ideally time a rate lock could be challenging, or even impossible.

“I know of no seasonality or day of the week or time of the day that systematically affects mortgage rates,” Johnson says. “Large macroeconomic effects drive interest rates, and they typically don’t have seasonality.”

However, many professionals agree that there are certain dates of the year on or immediately after which you should be watching the market.

These include the first Friday of every month, when the U.S. Bureau of Labor Statistics releases its jobs report, and days when the Federal Reserve holds its policy meetings.

Fed meetings last two days, and consumers should be ready to lock after the meeting adjourns on the second day. At meeting’s end, the group releases its statement. Rate-favorable news found therein can drive down rates dramatically.

Upcoming meetings will be held on the following dates.

  • December 13-14, 2016
  • January 31 – February 1, 2017
  • March 14-15, 2017
  • May 2-3, 2017

Major events can also drive down rates. The Britain’s recent vote to remove itself from the European Union sent shock waves through the U.S. mortgage market.

Rates dropped by up to 125 basis points (.125%) in a single day, marking the best day for rates since 2014.

But rates can move quickly in the opposite direction, too., the 2016

The 2016 presidential election sent rates right back up near one-year highs.

Consumers who are ready for market-moving news can swoop in and lock in a rate near all-time lows, or beat massive upswings.

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The Right Time Depends On You

Although it can be smart to pay attention to events that can affect the interest rate market and seek advice from your chosen mortgage professional, deciding when to lock in your rate is ultimately up to you.

“Ask yourself,” says Tierce, “would you be more uncomfortable if you locked in and rates went down, or if you didn’t lock-in and rates went up?”

Gambling on rates by trying to time the market usually ends in disappointment, says Todd Huettner, president of Huettner Capital in Denver.

“My golden rule is to lock in as soon as you have a scenario that works for you. If your lender offers a provision, you can lower your rate if they go lower, but you are protected if they rise,” Huettner says.

“But don’t second-guess yourself,” he continues, “Determine your risk tolerance and decide on your strategy about when to lock prior to making a decision to lock, based on any short-term technical analysis.”

What Are Today’s Rates?

Mortgage rates are at new 3-year lows and approaching all-time low levels. Rates this low may not last long-term.

Get a quote now and lock in your ideal rate. Quotes don’t require a social security number to start, and you get instant access to your live credit scores.

Verify your mortgage eligibility (May 8th, 2021)