How can I lock a lower rate?

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Q: I have an adjustable mortgage loan …As interest rates begin to rise I want to keep an eye out for the moment I need to refinance to a fixed rate.  It has a cap of 11 percent but I would of course like to not go that high.  What percent do you advise refinancing? — Ann B., Sarasota, Fla.

A: Though there are legions of economists and analysts who will suggest otherwise, it’s impossible to determine "the moment" when interest rates have hit the bottom of a given cycle. According to this chart, you’ve already missed it -– back in May of last year.

Keep in mind that the interest rates that get all the headlines — the short-term bank lending rates set by the Fed — are not the same as the long-term mortgage rates set by the bond market. Interest rates on the benchmark 10-year Treasury bond actually fell slightly Wednesday after the Fed voted to raise rates. Some analysts suggest that’s because the bond market — sensing for some time that rates were headed higher — has already made its move and pushed rates higher. So the prospect of a slow and steady rise in short-term rates to around 3 percent — especially since Fed Chairman Greenspan has all but promised as much —may have already been “factored in” to current long-term rates like home mortgage loans.

The future direction of long-term rates could depend a lot more on things like the price of oil (high oil prices could be inflationary, which could force rates higher) or the continued strength of the U.S. economy.

So if you’re thinking of refinancing for the long haul, now’s as good a time as any. Rates could even drop a bit from current levels, but odds are more likely they’ll go higher. If you wait and try to chase the next bottom, you may wind up refinancing closer to the top.