Mortgage Rates Drop: What to Know Before You Refinance

3. In today’s environment, locking in rates will take more than a phone call.

If you want to lock in a rate, the majority of lenders are going to require that you fill out an application and provide documentation . You aren’t spending money to do that, Kelly points out, but it does take time. “By the time mainstream press puts out the news that rates have fallen it’s usually a week to ten days after it happens,” warns Kelly. And that means you have to be proactive. The MBA’s says Fratantoni says that, “One factor that may be contributing to this increase (in applications) is that borrowers potentially impacted by impending decreases in the conforming loan limit may be opting to lock in fixed-rate financing now.”

My advice: If you’ll be kicking yourself if rates go up before your loan is closed, submit your application and protect yourself with a rate lock. Then focus on making sure your loan officer has the information he or she needs from you to close your loan.

4. You don’t have to have perfect credit to get a great rate.

Your credit scores are important when it comes to getting the best mortgage rate, of course. But if your credit isn’t perfect, you may have options. FHA loans, for example, offer low rates and allow lower down payments for borrowers with less-than-perfect credit (generally with FICO scores as low as 620).

My advice: Check your credit reports and FICO scores and see if there is anything that may be wrong. But don’t dispute items or make any drastic changes like closing out old accounts without talking to your loan officer first. Those efforts could backfire. Then stop agonizing if your credit isn’t perfect. The rate you get now may be better than what you can get if you wait until your scores improve.

My Final Advice

If I were a gambler, I would have bet interest rates would have been higher than they are today. I would have lost. And that’s the problem—who really knows where mortgage rates are going? Case in point: My colleague Farnoosh Torabi just wrote about how the debt ceiling debate may affect mortgage rates. Kelly expects mortgage rates to be more volatile over the next few weeks depending on the optimism or pessimism over whether the U.S. may go into default.

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So if you’ve been procrastinating about refinancing, don’t put it off. I know it’s one of those “I’d rather scrub the oven with a toothbrush” kind of chores, but it may save you a lot of money in the long run. And if you’re successful, you can brag to your neighbors. That’s so much better than hoping they’ll see your clean oven.

Need more convincing? Listen to podcasts of my interviews with Joe Kelly of ArcLoan.com on Talk Credit Radio: