Cliche and salesy as it might often sound, mortgage interest rates really can change constantly.
So many uncertain, uncontrollable things — chiefly socioeconomic and political factors — help shape the markets that determine rates. Tools like the Veterans United loan calculators can help you work out finances.
Invariably, though, there’s one question that dominates this entire discussion, no matter whether rates are at record highs or record lows: When should I lock the interest rate on my VA home loan?
VA Loan Rates
Before we get to the big question, let’s back up a step and talk first about when you can lock your rate. If you’re not locked into a rate you’re “floating,” as it’s called. Potential homebuyers are almost always going to be floating until they’re actually under contract on a home; most lenders will require a property address for a rate lock. So if you’re planning to start the house hunt next week, you can’t call a lender today and try to lock in the current interest rate.
Once you’ve inked a purchase agreement, you’re then faced with the familiar dilemma: Continue floating or lock the rate? Some lenders will actually charge you for the privilege of locking your rate, so that may be a consideration (Veterans United doesn’t charge a lock fee). This is when paying attention to current events can really pay off. Spend some time online reading about interest rate trends and forecasts for the coming months. Try to get a general sense of the current rate environment and where things might be headed.
It’s also a good idea to lean on your VA loan specialist. They’re obviously much more likely to be in tune with the interest rate landscape and what likely makes the most sense given your particular situation. You may also want to play with a mortgage calculator using a variety of interest rates, just to get a feel for what you might be paying should you decide to float and interest rates rise before closing day.
Over the life of a 30-year mortgage, the difference in interest rates can definitely make a difference. For example, on a fixed-rate 30-year mortgage at $150,000 and 5.5 percent, your monthly principal and interest payment is $851. Move the rate to 6 percent and that payment is $899 per month, which is an extra $48. Not a tremendous difference per month, but over the life of the loan you’re talking about paying an extra $17,000 in interest.
Remember, too, that if interest rates rise before you lock your monthly debt-to-income ratio will change (a higher rate means a higher amount of interest paid to the lender each month). Borrowers on the edge could actually fall out of contention for a VA loan if the increase is substantial enough.
Locking the Rate
At the day’s end, everyone wants a crystal clear answer to the big question. Unfortunately, there’s no simple or uniform answer, at least one that’s likely to satisfy many VA borrowers. Your loan officer will give you his or her advice, but it’s ultimately up to you to pull the trigger.
Here’s the closest I can come to a good answer to the “When should I lock my rate” question: If interest rate forecasts and your loan officer’s expertise lead you to believe that rates are likely to rise, or at least be volatile, before you close, considering locking your rate, provided you’re comfortable with your overall mortgage payment. There’s a second part to this answer, which is: Don’t look back or second-guess yourself.
It’s easy to beat yourself up if rates decline after you lock. There’s simply no need to get down — you made the best call you could at the time with the best information you had. It’s also important to keep the longview in mind. In terms of historical context, a rate you might consider “high” in the current environment would be the envy of anyone who purchased a home in the early 2000s, the 1990s or earlier, when rates were considerably higher. You may also be able to refinance into a lower rate at a later date.
So do your homework and stay in constant contact with your loan officer. But don’t obsess or get bogged down. Floating on your rate can certainly be a gamble. It’s really a question of whether you deem the risk acceptable given the potential reward.
To learn more about rate locks check out our comprehensive guide on the VA home loan.