Fickle Mortgage Market Demands Quick Decisions

If You Find a Great Rate, Grab It, Consumer Advocates Say

Just about anyone who cares knows that interest rates on a 30-year, fixed-rate mortgage have dropped recently.

But by the time you figure out what that means for you, it could all change.

With the world's financial markets in uncharted territory, trying to get a handle on what's likely to happen to mortgage rates has become more baffling than usual.

The rates on plain vanilla 30-year, fixed-rate loans tumbled after the government seized control of mortgage financiers Fannie Mae and Freddie Mac on Sept. 8. The following week, loan applications from borrowers eager to refinance shot up 88 percent, while those from people looking to buy a home went up 5 percent, according to the Mortgage Bankers Association.

But when the global financial markets went haywire in the middle of this week, that havoc translated into a quick spike in mortgage rates. Still, the average rate fell for the fifth consecutive week, to 5.78 percent, from 5.93 percent the previous week and 6.34 percent a year ago, according to a Freddie Mac survey.

The bottom line, echoed by many consumer advocates, is that if you're shopping around for a loan and you find a rate that works for you, grab it. Do not risk a botched deal by waiting for a lower rate, said Keith Gumbinger, a vice president at research firm HSH Associates. "In these highly volatile market conditions, your opportunity to get that deal completed may be fleeting," Gumbinger said.

Here are some issues to consider if you're thinking of buying a home or refinancing your loan. The answers are based on advice from Gumbinger; from Greg McBride of the personal finance Web site Bankrate.com; and from Gibran Nicholas of CMPS Institute, which trains and certifies mortgage bankers and brokers.

Q Can I lock in a mortgage rate even if my closing is many months away?

AYou might be able to, but it may cost you. "You are basically asking the lender to bear interest rate risk over a longer period of time, and they may make you pay a pretty penny for that," McBride said. Generally, extra charges come into play when you lock in a rate past 30 to 45 days. Pin down the timing with your lender and get it in writing to avoid confusion.

If I locked in a rate, can I still benefit if interest rates decline later?

Some lenders will offer a "float down" option up front that will allow you to do that. It, too, will cost you. The cost could be reflected in the rate you're quoted. Without a float down, the lender is under no obligation to renegotiate. As a practical matter, some will do so just to keep a customer from walking away. But if you do walk, they can keep the fee that most lenders require when locking in a rate.

Why do lenders resist renegotiating the rate?