Rate Locking Strategy in Times of Market Uncertainty.

Rate Locking Strategy in Times of Market Uncertainty.  In times like today where the markets are uncertain on which way interest rates will go, this could be the best time to buy a home with a 30-year fixed rate, prepayable mortgage. The home buyer fully protects themselves from any future scenario where mortgage rates may rise, but they get the full benefit of a scenario where interest rates decline, by doing a no cost refinance if rates drop.

The U.S. is the only nation in the world where a person can buy a home and lock in their interest rate for 30-years and have the right to refinance to a lower rate at any time without any penalty or lockout period. This is a heads you win, tails you win economic outcome for a homebuyer.

If a homebuyer chooses to sit on the sidelines during times of uncertainty, they face the risk that interest rates could be higher and/or home prices could be higher. If a person believes in the efficient market theory, they are facing a 50/50 probability that interest rates will be higher, and a 50/50 probability that home prices will be higher. The 30-year, fixed-rate, prepayable mortgage provides consumers with incredible financial value, but only if they use it to buy a home, rather sit on the sidelines as a renter.

If a person buys a home today, they will amortize about 1% of their loan amount in the first year. Rates would need to drop at least 1% in rate just to make the decision to wait be a break-even outcome, to offset the 1% value of the equity they did not earn while they were waiting. And this assumes home prices did not go up in this year while they were waiting.