What with all of the interest rate volatiltiy over the past few weeks, many of my clients have been deciding whether or not to lock in their rate. The question arose as to why the rate locks for 45 days are more expensive than those for 15 days. The quick answer is, UNCERTAINTY. Nothing could have illustrated that more than the jobs report Friday, July 8.
On Wednesday, ADP reported a large increase in private payrolls and interest rates began to climb. Clients considered locking before the jobs report came out lest the news was good (bad for rates) and rates would rise. Clearly this issue is more acute the closer to closing one gets. The jobs report on Friday was horrible and as fast as rates would have climbed, they plummeted.
What should someone have done about locking their rate? While of course there is no absolute answer, the following things should be considered:
- Is the rate for a longer period one that you are happy with?
- Do you think the economy is getting better of worse between now and closing?
- Is the pleasure of getting a lower rate equal to the pain of getting a higher rate?
It's all uncertain.
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