Effect(s) of Rate Jump

Didn't Lock? Wait, and Hope for the Best

Nice piece exploring the potential fallout from this week's dramatic spike in mortgage rates (Potential Consequences of 5.5% Mortgage Rates).

Although I think it's premature to entertain all the negative consequences -- after all, it's possible that rates may drop as quickly as they popped -- the post does a nice job of explaining how the mortgage market works.

In particular, if you didn't already know, lots of folks with pending re-fi(nance) and mortgage applications opt to "float" (vs. lock) their rates. So, when rates jump dramatically, these same applicants face either sharply higher borrowing costs, or, in many cases, no longer qualify for their loans. Neither is good news for the housing market, or broader economy.

On the other hand, anything that boosts anemic interest rates arguably helps millions of savers currently earning next to nothing on their liquid cash.

So what do you do if you're one of the people with a mortgage application pending, or who's contemplating refinancing?

Two thoughts: 1) the move in rates has been so huge, you'd naturally expect at least some retracement (in the stock market, it's common for a big move to be followed by a partial reversal); and 2) if your lender offers a "re-lock" option at a reasonable cost . . . get it.

Especially when rates are so volatile, getting a "second bite at the apple" is a good idea.

P.S.: the "why" of the mortgage rate spike is at least as significant as the "what." At the moment, there appear to be two, competing narratives: one camp holds that higher rates are a sign of a strengthening economy; the other, that massive federal borrowing is causing the bond market to demand higher returns. In fact, they're probably both true . . .