LOCK STEPS

By MAX GROSS

Posted: 12:22 am
June 25, 2009

 

Getting a good rate on a mortgage is a little like telling a joke -- timing is crucial.

Right now, rates are favorable for anybody qualified for a mortgage or a refinancing. Yesterday, the rate for a 30-year fixed mortgage was 5.41 percent (which was better than it was last week, at 5.67 percent). This is extremely good by historical standards -- but it's not even close to what it was in April, when it reached an all-time low of 4.78 percent.

This has led mortgage brokers into giving their clients a stark choice: To lock or not to lock.

If nothing else, locking in an interest rate will take the anxiety out of watching the dizzying ups and downs of the mortgage market.

"If you are getting a substantial, meaningful benefit," says Michael Moskowitz, president of Equity Now -- and by "meaningful benefit" he means a rate in the low-5 percent range -- it could make sense to lock in now and avoid future anxiety.

But there are advantages to waiting as well. Here's the case for -- and against -- locking in a rate.

PRO:

No matter which way you look at it, rates aren't always going to be this low.

If rates climb that high, monthly mortgage payments are going to look starkly different than they do now (this could mean hundreds, maybe thousands, of dollars more per month than what you're currently paying). And if you are a buyer waiting for the market to bottom out, this could cancel out any savings you'd get from a lower price.

Yes, rates have been bouncing and they could go lower, but the current trend is that they are creeping up.

CON:

Of course, getting a good rate now might look like a sucker move if rates fall back below 5 percent in the short term. Which might well happen.

Even though rates can't stay low forever, the Fed is not going to want to do anything to endanger the economic recovery.

For this reason, the Fed is going to fight off raising rates for as long as possible.

And if you're a pessimist who believes that the market has far from bottomed out (like Moskowitz, who sees prices falling another 25 to 30 percent), buying now makes little sense, so there's no point to locking.