View Full Version : mortgage rate lock?

10-07-2004, 10:53 PM
Alright, I am having a house built, I can lock my rate right now for 1/4 point and 1 grand. Otherwise I float for the next 60 days and it locks in the next 60 with my choice of days.

Which do I do? I dont know if this even appropriate for this forum but thought I'd ask since i have no idea. And its somewhat related


10-08-2004, 08:19 AM

Historically, rates have tended to decrease during the period Sep-Dec. 2001 has been the exception recently.

Rate locking now would be similar to betting that the trend continues. If you don't lock, you know you are "covered for a 1/4 market increase, in which case you have saved the $1k fee. Rates have not increased 1/4 during this time period, but anything can happen. Good luck.

Ray Zee
10-08-2004, 09:37 AM
rates will most likely go up one half point or less if they do. so just figure out the quarter point cost and the grand, against what the total interest expense you will be paying. easy to weigh out risk verses reward. off the top of my head you are getting a bad deal. as these things arent offered for your benefit. only those that keep their mortgages for the life of them and dont move or sell make out with these type of things.

10-08-2004, 11:59 AM
Thank you both, this confirms what I have been thinking. Just needed some second opinions.

10-08-2004, 02:27 PM
just to add that it really also depends on the size of the loan. If your loan is $75k, it would be much different than if your loan was $750k.

10-08-2004, 02:46 PM
Next rate increase: November or December or both?

There has been no specific communication from the Federal Open Market Committee to say that they will definitively raise interest rates again at the Nov. 10 meeting. But perhaps more importantly, nothing to say that they won't.

A popular gauge of upcoming Fed interest rate moves are the fed funds futures contracts that are traded on the Chicago Board of Trade. Futures contracts are used by investors to hedge, or speculate, on the movement of various commodities, interest rates or financial market indexes. Based upon the trading of fed funds futures with varied expiration dates, one can peg the market expectations of upcoming interest rate moves.

Based upon trading of the November contract, the expectations for a rate move are 60 percent. For the December contract, the odds reflect a certain quarter-point interest rate move by the December meeting, though not necessarily at the December meeting. The odds, as they currently sit, indicate one interest rate move by year-end, but not two. So will it be November or December?

As it pertains to the November meeting, the odds are certainly subject to change, especially after one of the two monthly employment reports to be issued between now and the Nov. 10 meeting. But the odds of 60 percent, coupled with the Fed's post-meeting statement on Sept. 21 that did little to hint at any greater possibility of not raising rates at the next meeting (i.e. the same "measured" phrase remains), and continued references that the fed funds rate is still well below the neutral level aren't exactly consistent with an intent to hold steady in November. This is not to say that plans won't or can't change, but the FOMC members would have some serious jawboning to do first.

If you're skeptical about the orchestrated jawboning efforts of Fed governors, consider a speech made last night by Susan Schmidt Bies, a voting member of the FOMC. She repeated some of the same phrases used by Alan Greenspan regarding the economy, noting that economic growth has "regained some traction," that "inflation and inflation expectations have eased," that inflation had been boosted by "transitory factors," and that the "Federal Reserve can remove its policy accommodation at a measured pace." My friends, this is no coincidental choice of words, but a key component of the Fed's ongoing communication efforts geared at adequately preparing financial markets for intended interest rate moves.

10-08-2004, 02:55 PM
If the economy has "regained some traction" and "inflation and inflation expectations have eased", why would rates necessarily increase?

He's not saying it's party time like 1998-99.

10-08-2004, 03:24 PM
The main point is that there is a 60% chance of a quarter point increase in November and a virtual 100% chance of a quarter point by December. There's also a small chance of a quarter point at each meeting. So you are paying the quarter percent no matter what. So what is the value of protecting against an additional quarter percent? It's about $310 per $100,000 in loan. So if you have a $200,000 mortgage you would save $620 present value ($15/month on a 30 year loan) So you'd be paying $1000 for the chance to save $620... probably not a good deal. IF the loan is $400,000 the potential savings is now $1240... a much bigger number but since the markets tell us that a half point increase isn't particularly likely I stillwouldn't do it. You'd probably ahve to have a loan size of over $500,000 or so to really consider locking.

Good luck.

10-08-2004, 03:58 PM
We have all agreed on the issue of the rate lock. I was merely questioning your reasoning about a rate increase due to your Fedspeak quotes.

10-08-2004, 05:13 PM
Doh my bad... that was a cut and paste from an article. I didn't write it. /images/graemlins/smile.gif sorry for the misunderstanding.

10-08-2004, 05:25 PM
/images/graemlins/grin.gif actually, key thinking ray; them bankers are like casino owners; they present propositions that are in their favour..

my guess is rates will not go up until after the election; but

if i could call interest rate changes consistently; and accurately:

would i be here??



/images/graemlins/smirk.gif /images/graemlins/mad.gif /images/graemlins/wink.gif /images/graemlins/club.gif

10-09-2004, 01:31 AM
Let's keep in mind that the bond vigilantes control the yield curve from 2 years on out and the Fed determines rates from 0-2. Thus mortgate yields are a function of rates from 2 years on out and are more out. When Fed governor Bernacke made some noises about the Fed interrupting it's measured pace of Fed funds rate increases the 5 year and 10 year treasuries actually declined in price/increased in yield. Bernacke's comments of possibly interrupting the Fed's tightening plan actually triggered a sell of in the bond market. Lots of folks believe that the current Fed funds rate is too accomodative and thus believe that inflation is a risk. Just look at what commodities are doing. I realize that the major component of the price of goods is labor for the most part but it is worth noting the rise in commodities (Ray, scalf and wildbill have pointed this out) and the inflationary threat it presents.