What Aristotle Can Teach Us About Locking Mortgage Rates Instead Of Floating Them

Aristotle bestowed the gift of syllogism upon the world and thousands of years later, it is still believed to be the core of Western logical thought.

A simple syllogism goes like this: 

1. Mortgage bond markets are unpredictable
2. Morgage bond markets dictate mortgage interest rates
3. Therefore, mortgage interest rates are unpredictable

For as much as guys like me can have a vague idea of what can push mortgage rates in one direction or the other, there's always something that comes out of left field to surprise us. 

The syllogism says that predicting the future of mortgage rates is a waste of energy.

Mortgage bond markets are unpredictable because the world is unpredictable.  We can try to make sense of it, but there are a near infinite number of variables to the equation.

Lately, we've been focused on economic events like Unemployment Rates and Retail Sales.  We also spent time on loan-level pricing adjustments.  Pretty soon, we'll add Hurricane Season and oil pipelines to the mix because that will have an impact on mortgage rates, too.

It's like juggling six balls at once and then being told to go stand on a ladder.  There's just too much to which to pay attention.

And then -- to make predictions even tougher -- mortgage rates are moving with a tremendous amount of velocity right now. Over the last 60 days, the nation's largest lender is averaging 2.13 rate sheets per day.  That's the shortest rate sheet lifespan in recent memory.

It also means that mortgage rate quotes are expiring extremely fast.

So, except in rare circumstances, the mortgage rate syllogism is why I advise mortgage applicants to lock a mortgage rate in as soon as possible.  "Floating" can be risky in an unstable mortgage market.

Today's rates and payments may look good, but as Aristotle reminds us, tomorrow's this afternoon's rates and payments could look completely different. 

(Image courtesy: KidsPast.com)