Locking in Your Mortgage Rate

When you apply for a mortgage, you'll need to decide if you want to lock in your interest rate. To do that, you'll have to pay a quarter point or so, an amount that is typically refunded at closing.

When to lock is a crucial question. Trying to time the bottom of the market for interest rates, just like trying to time the stock market, is a fool's game. And it's really easy to get burned in a rising rate environment—and rates have been moving up recently from record lows. Here are four questions you can use to help you decide when to pull the trigger:Can you afford to lose? If a jump in rates of a quarter point means you'll no longer be able to afford your house, lock immediately.

What's your rate now? In a refinance situation, if you have an 8 percent or 9 percent rate, you win whether rates fall to 7 percent or 7.25 percent. If you're already at 7.75 percent, that quarter of point makes a bigger difference.

How is the bond market doing? Mortgages follow bonds closely—not in lockstep, but closely. In most cases, one bad day won't cause a huge jump in mortgage rates, but if a bad pattern starts emerging (if you hear the CNBC jockeys talking about sell-offs over two or three consecutive days, for example), then act fast. Rates almost always rise more quickly than they fall.

Are you being greedy? If rates have plummeted to thirty-year lows and you're holding out for thirty-one-year lows, you're asking for too much.

Make sure that if you do lock, that you get it in writing, that you give yourself enough days to get to the closing table, and that you have all the rates clearly specified