I know this is something nobody can just have an answer to, but was looking for advice. Im supposed to close on my new 100 year old house Dec 19. I was called today by my lender about locking in my rate. I can do anything from a 6.35% to a 5.35% depending on how much i want to pay for closing costs. But also with how interest rates are dropping and the fed meeting next week, do I wait to lock in? If I do lock in, do I pay for a lower interest rate even if it takes 5 years to break even? Sure, id love to say my wife and I are going to live here for the next 10 years if not longer but who knows. Plus, I could do the 6.35 and if interest rates drop I could just refinance? I know there is no right or wrong answer and nobody can know when rates will drop but just wanted some opinions from way more experienced minds. Idk what im doing help lol

This person is asking a lot of questions.

The first, to lock in the rate, or not?

Second, if he locks in, should he pay money to buy down the interest rate or not?

Third, is it worth it to buy down the rate if rates will drop and he refinances anyway?

What is locking in a rate?

When you get a home under contract, you'll be faced with a decision on whether or not you should lock in your interest rate.

Locking in an interest rate will help prevent the rate from going up while you finalize financing.

But also with how interest rates are dropping and the fed meeting next week, do I wait to lock in?

Fed meetings tend to introduce volatility. Investors are waiting to hear what comments the Fed Chair will make about FUTURE rate cuts. Not today's but months in the future. If they hear verbiage like "we see the need to continue cutting" then you'll see mortgage rates drop.

If investors hear "we see evidence of inflation creeping up, and will hold rates until we see a sign of inflation going down" then you are going to see mortgage rates spike up.

Investors react quickly to future news like this.

If you wait, your gambling today's rates on something someone might say about future rate cuts.

It really is gambling to float (float is opposite of lock) an interest rate.

Consider a lender that offers a float down option

What is a float-down?

A float-down is like a “just in case” clause. If you lock at 6.5% and the market drops to 6.0%, a float-down lets you grab the lower rate, usually one time.

It’s not always free.

Some lenders charge for it (flat fee or a small percent of the loan), and some only offer it if rates drop by a certain amount.

Ask your lender:

Do you offer float-downs?

How much does it cost?

When can I use it?

How far do rates need to drop?

Not all lenders offer this, so ask early.

Consider working with a mortgage broker

Mortgage brokers can help transfer your file to a new lender if rates drop and if you can't negotiate a float-down

The second question, should I buy down my rate?

If I do lock in, do I pay for a lower interest rate even if it takes 5 years to break even?

This person doesn't have to decide now. This person can lock, and change rates after the fact.

When you lock, you’re usually locking in a menu of options, or the rate table, not just one rate.

That menu (aka a “rate sheet”) includes higher rates with lender credits (help cover closing costs), and lower rates that cost more upfront (called points).

You can still switch between these choices later, you're not stuck with the exact rate you picked, as long as you stay on the same rate sheet.

Example:

6.375% = $2k lender credit (less cash at closing, higher monthly payment)

6.125% = you pay $6k in points (more cash paid at closing, lower monthly payment)

It’s all about trade-offs.

The key is to run the break-even math. If it takes you 5 years to save back the upfront cost in monthly payments and you’re moving in 3, then don’t bother with points.

Here's a break-even calculator for you.

You can usually pivot between different rates on the rate sheet you locked, but make sure you do it with advance notice. Maybe 2 weeks before at the latest.

and last question, will rates drop soon? (is a refinance in the cards?)

Plus, I could do the 6.35 and if interest rates drop I could just refinance? I know there is no right or wrong answer and nobody can know when rates will drop but just wanted some opinions from way more experienced minds. Idk what im doing help lol

Here's my post on my reasoning why rates could drop. (but not as much as you think)

I believe we'll be seeing around a 6.125% average conventional rate by summer 2026.