Mortgage rates have been at historic lows for quite some time largely due to the Fed’s purchase of mortgage backed securities. Although the Fed is involved with keep rates at artificial lows, mortgage rates are also influenced by other actions. For example, yesterday we saw some volatility partially caused by bond traders taking profit. The Fed has indicated they will continue the purchase of mortgage backed securities for an extended period of time. So when is it the right time for you to refinance and lock in a rate?
Locking in a mortgage rate means that you have secured a certain rate at a certain cost (or credit) for a specific amount of days. It’s a “rate lock commitment” for the mortgage originator to deliver that loan to the lender. When you have locked in a mortgage rate, assuming the transaction closes in time, you are assured that you have that rate for that time period. If you wind up needing additional time, you may be able to extend the rate lock commitment for a specific period. Although locking at the begin of a transaction provides you peace of mind that you have that low rate; the risk is that rates may improve.
You can also start the refinance process and “float”. This means that you start your loan application and the entire process until you decide to lock in your interest rate. You don’t have to lock in your rate until about 10 days before you closing. With floating your rate, you’re risking rates may deteriorate before you’re able to lock.
In my opinion, rates are at such low levels, it makes sense to lock now. However, if you’re someone who will be disappointed if rates improve by 0.125% and you don’t mind the risk of a higher rate, floating may be better for you.
Should you refinance? You may want to consider refinancing if:
- Your current mortgage rate is in the mid-4s or higher and if you have a conforming loan amount, which in the Seattle area is a loan amount of $506,000 or lower. NOTE: some of my clients are doing “cash in” refinances to bring their loan amount down to $506,000.
- If your loan amount is over $506,000 and under $567,500 in King, Pierce or Snohomish county and your loan to value is around 95%, you may want to consider an FHA jumbo mortgage.
- If you are eligible for a HARP 2.0 refinance. Click here to learn more.
- If you currently have an FHA insured mortgage, you may be eligible for an FHA streamlined refinance. No appraisal is required with an FHA streamlined refi.
- If you are considering shortening your mortgage term.
- If you currently have an adjustable rate mortgage and wish to have a fixed rate mortgage.
- Create more cash flow for your investment property by reducing the rate. NOTE: Investment property may qualify for HARP 2 or FHA streamlined refi’s
If your home is located anywhere in Washington state, I’m happy to review your scenario for you to see if it makes sense to refinance now. Click here if you would like me to provide you with a rate quote for your home located in Washington.