Navigating mortgage rate locks in this competitive summer homebuying market

Blake Nissen for The Boston Globe via Getty Images
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Though borrowers have the chance to lock in a mortgage rate at historical lows this summer, low inventory and increased competition could make finding a home even more difficult. That might leave some buyers wondering about the best time to lock in a mortgage rate.

“Market timing is always difficult,” says Lawrence Yun, National Association of Realtors chief economist. “Consumers should instead focus on the right home that meets their budget.”

Fortunately, homebuyers don’t have to worry about mortgage rates rising significantly in the near future. Yun predicts that rates will remain fairly steady at near historical lows for the next 18 months.

Indeed, the Mortgage Bankers Association (MBA) forecasts that rates will stay in the 3.4 percent range through 2020 for the most popular 30-year fixed-rate mortgage. Currently, the average rate on a 30-year, fixed-rate mortgage sits at 3.43 percent, a new all-time low, according to Bankrate’s weekly survey.

If you’re worried about rising rates, however, keep in mind that some lenders offer rate locks as long as 120 days. But longer rate locks generally cost more, and it’s most common to see rate-lock terms of 30 to 60 days.

Overall, it’s best to make sure your rate lock will at least last long enough to cover the homebuying process. In May 2020, it took an average of 47 days to close on a home, according to Ellie Mae. That’s up from 40 days in March as the pandemic was taking hold.

What to expect this summer homebuying season

Data from the MBA shows that housing demand is high. That’s due, at least in part, to record low mortgage rates. Inventory, however, is very low, which poses a problem for those in the market.

“Unless additional housing inventory is available, this increase in demand cannot be matched by the expected robust increase in home sales,” said Mike Fratantoni, SVP and chief economist for the MBA in a statement about its recent home construction data.

More homebuyers in the market mixed with fewer houses to choose from is a potential roadblock for those looking to buy. In some markets, homebuyers might face bidding wars.

“Now that the economy is steadily reopening, expect listings to pop and some multiple offers may be common,” Yun says.

Of course, a shortage of homes was an issue even before the pandemic, notes Yun. But, “the economic lockdown intensified the shortage with even fewer listings,” he says.

What is a mortgage rate lock?

When you rate lock, the lender freezes the interest rate for a specified period. Regardless of whether rates move up or down during the time you submit an offer and close on a home, you’re still guaranteed the same rate.

Generally, it’s not possible to lock in a rate until after the initial loan approval.

Before you lock, make sure to get an explanation of the lender’s rate lock rules. Read more about mortgage rate locks here.

Bottom line

With rates expected to stay low for months if not years, it may not be worth your money to pay for an extended rate lock. Since lenders have been clearing out their backlog of applications, it’s reasonable to assume a closing can happen in 60 days or less. If the lender only offers a 45-day lock or less, try to get some assurance from the lender that the closing can indeed happen in that time period if you supply all the required paperwork in a timely way.

Featured image by Blake Nissen for The Boston Globe via Getty Images.

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