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When should I lock my rate?

JANUARY 12th , 2015

The cloud cover on my crystal ball always keeps me from answering this question!  There is no accurate way to give a definitive answer to this question, but there is every reason to believe that we will see some fluctuations in rates this year.  That is the politically correct response – and really doesn’t help the potential homebuyer trying to make a decision today on whether to lock in an interest rate.  So what can we share with our clients that are looking to secure “the best deal” on a mortgage?

First, there are three major economic indicators that give us that future glimpse that might help drive these decisions.  These are in the news monthly and can be accessed via google or any other online financial website (CNN Money or the Wall Street Journal).

  • Economic Growth (GDP Report) – this is the state of the economy and is the aggregated monetary value of all goods and services.  When the GDP is on the rise, demand for money is also rising and interest rates will go up (supply and demand). 

  • Inflation – this is the nemesis of the bond market and inflation will cause rates to rise. Two reports provide consumers with knowledge about inflation. One is the Core Personal Consumption Expenditures (PCE) and is the favorite of the Fed.  This measures the prices we pay for goods and services (kicking out food and energy).  The second report is the Core Consumer Price Index (CPI) which measures the change in prices over time.  As rates are low, consumers have more buying power.  As rate increase, consumers have less money to spend and the economy slows.  A balancing act like the Great Wallenda never encountered!
  • Unemployment – the largest indicator of the health of the labor market. This is found in the Non-Farm Payrolls report. (Farming is too seasonal so it skews the numbers).  This one is hard to understand, but as more jobs are created investments move toward stocks and interest rates rise.  While we need improvement in unemployment, it can create higher mortgage rates.

My advice – when you shop for a mortgage, look at your own personal financial picture.  The market is currently poised to see an increase in rates in 2015, but how quickly that occurs will be anyone’s guess.  No one can determine your own comfort level about your mortgage payment but you.  When you seek information, determine if the payment meets your needs and commit.  Hesitating too long, you may see an increase that keeps you from meeting your goal.

 Call us today to find out about your mortgage options!

By Pam Woodall

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