This is a question that we, as mortgage professionals struggle with!
Â We want to lock inÂ our borrower's loan, but don't want the borrower to leave if rates go down.Â On the flip side, we might really want rates to drop and in turn float
the rate, only to see rates go up and a deal potentially lost.Â
As such, When is the "best" time to lock your loan?
A wise former manager of mine expressed his view as this: A bird in hand is better than two in the bush.Â Â
It's better to have a lesser but certain advantage than the possibility of a greater one that may come to nothing.
It's origin dates to medievil falconry where a bird in the hand (a falcon) was better than two in the bush (prey).Â Another translation came in 1392 when this proverb was translated from the Bible to English: Ecclesiastes IX
- A living dog is better than a dead lion.Meaning to you
The Federal Open Market Committee (FOMC) meets eight times per year to formulate monetary policy and give markets an indication of what the future will hold for interest rates and inflation.Â Inflation is calculated using the consumer price index (CPI) and is published monthly by the Bureau of Labor Statistics.Â April's CPI will be released May 15, 2012; however March's CPI was 2.7% down from 2.9% in February.Â
Most experts agree however that the "real rate" of inflation is much higher in terms of the impact of stealth inflation on the true costs of goods and services.Â Wheareas the price of a 4 oz yogurt for example, was priced at .79 cents yesterday; today it is 3 oz, albeit still priced at .79 cents.Â Impact?Â 25% decrease in product sold at the same price or a 25% increase in the actual inflation rate of the product.Â Experts see this "stealth inflation" as just one way in which manufacturers are passing on inflation without actually increasing price.Â
Couple this with America's insatiable appetite for spendingÂ make theÂ prospects for higher inflation and higher interest rates highly likely.Â US has a current "debt-to-GDP" ratio of 103.668% as of this morning.Â Source: http://www.usdebtclock.org/
Inflation and government spending will give the Federal Reserve Board little choice but to raise rates.Â As such, I recommend that borrowers work closely with their lenders with the best weapon they have: communication; honest, open communication.Â Trust your lender's instincts and follow their advice.Â You can never quite know what might happen to interest rates, but it is sad when rates go up and borrowers either miss out or simply have wait and hope that rates come back down.Â
& remember, a rate in hand is better than two on the float.
Yes, that Falcon would have been proud!