Excuse the rerun, but this post first ran in December 2008. It's still relevant and worth a re-read. 

Mortgage rates have followed an interesting pattern lately that I'm dubbing the Plunge-and-Surge. 

In Plunge-and-Surge trading, mortgage rates respond to an outside influence -- usually the government -- by making an immediate cliff dive.  Rates touch all-time lows in a matter of hours.

Then, with equal speed, they bounce back to "normal" as if tied to a bungee cord.

It's happened 5 times since last year, in fact:

1. January 2008: After the Fed's "surprise" rate cut
2. September 2008: After Fannie Mae and Freddie Mac were nationalized
3. November 2008: After the Fed pledged $500 billion to mortgage markets
4. December 2008: After the Fed lowered the Fed Funds Rate to 0-ish
5. March 2009: After the Fed pledged another $750 billion to mortgage markets

Sadly, when rates drop post-event, rate shoppers often like what they see but rather than locking in with their lender, they decide to wait a few days for rates to go even lower. While they're waiting, of course, rates don't get better -- they get worse.  It's happened over and over again.

I lose sleep when I think about how much money people lose by not locking sometimes.  If we can learn anything from the 5 Plunge-and-Surges since last year, it's that the best time to act on plunging mortgage rates is often right away. 

That said, it's perfectly reasonable to look at the frequency of the Plunge-and-Surge and think it will happen again. "If I don't get low rates now," you may think, "I'll just wait for the next drop."  In practice, that's a strategy that would have actually worked so I can't poo-poo it.  But that doesn't make it a good idea.

Frankly, it's the opposite of a good idea.  And I have 9 really good reasons why. 

Aside from mortgage rates, there's other factors that play into a mortgage approval and all of them are out of your control.  Rates may plunge another time, but when they do, you may be unexpectedly unable to take advantage.

1. You could unexpectedly lose your job.  Nearly 3,000,000 people have been fired in the last 5 months and each week, more layoffs are announced.  No job, no mortgage approval. Period.

2. Mortgage lenders could reduce loan-to-value limitations.  Suddenly, having a 20 equity stake in your home may not be enough.  You may need 25 percent or more to get the best pricing.  Homeowners with jumbo and non-owner occupied mortgages are especially susceptible here.

3. Your home could be damaged in a storm.  You can't predict the weather any better than you can predict mortgage rates.  And Mother Nature can be a mean one.  In Chicago, weather can ruin a roof.  The same can happen in Houston. Or Jacksonville.  And once a state Governor requests federal aid, mortgage lenders put all mortgage closings in affected area on hold pending a complete home re-inspection.  A damaged home doesn't get its new mortgage.

4. Mortgage insurance rates could rise. Private mortgage insurers have lost billions this year and have twice raised premiums to even up the balance sheets.  Default rates show few signs of abatement and it's likely that PMI rates will rise again. Higher PMI costs take away from proposed monthly savings and can offset falling interest rates completely.

5. You could fall ill or get injured.  Even for insured Americans, medical issues are the second-most common trigger-event for home foreclosures next to income curtailment.  If illness should keep you from working, or leads to long-term disability, your likelihood of getting a home loan is dramatically reduced.  Nobody ever expects to get sick.

6. Banks could tighten lending guidelines.  Well, we already know this is happening. With each passing week, it gets tougher to borrow mortgage money for one reason or another.

7. A nearby foreclosure could lower your home's value.  Foreclosures (and other "fire sales") bring down the Fair Market Value of every home in the immediate area.  Lenders don't care why the homes were sold cheap, either. Foreclosure or not, a home that's like yours that sells for less than yours is going to bring down your own home's value. This leads to higher loan-to-value ratios and, often, higher mortgage rates.

8. Your credit score could fall unexpectedly.  Credit scores are meant predict the likelihood of mortgage default and the model appears to have failed these past few years.  Anecdotally, there's evidence that the credit bureaus are correcting that.  Carrying high balances or opening new tradelines appears to be more damaging to credit scores than it used to be.  Lower credit scores means higher mortgage rates.

9. Mortgage rates could rise, not fall.  Look, nobody knows what rates will do tomorrow.  Anyone who says they do is lying.  The only thing predictable about mortgage rates is that they're unpredictable.  Take what you can, when you can.  You can always refinance again later.

And, if you want to throw a 10th reason in there for good measure, use this: It's bad karma to cancel a loan.  The Mortgage Gods never forget and -- someday -- it'll come back to bite you!

Check with me daily, as rates constantly change.

Gary Bussard (314) 993-6690.