8 Reasons Why "Waiting For Mortgage Rates To Fall" Can Come Back To Haunt You

In late-November, as mortgage rates fell into the fives, homeowners helped to start a mini-Refi Boom. This week, however, self-doubt crept in.

Rest easy, friends. You're not missing out.

See, it's well-known that 0-point mortgage rates touched 4.500 percent Wednesday. But it's a little less well-known that those 4-and-a-half percent rates lasted less than 60 minutes. And when the rates were gone, they were gone.

The press isn't doing a follow-up on it, but that same 0-point loan is now priced in the high fives instead. Owie.

Nevertheless, the Plunge-and-Surge has Refi Boom Homeowners wondering whether it would be good idea to cancel their refinance-in-process and wait for rates to fall back into the 4s.

Speaking frankly, this is a terrible idea. And I have 8 really good reasons why.

1. You could unexpectedly lose your job. Nearly 2,000,000 people have been fired in the last 12 months and each week, more layoffs are announced. No job, no mortgage approval.

2. Mortgage lenders could reduce loan-to-value limitations. Suddenly, having a 20 percent equity stake may not be enough. You may need 25 percent or more. Homeowners with jumbo and investment mortgages are especially susceptible here.

3. 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 so it's likely that PMI rates will rise again in 2009.

4. 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 loss. 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.

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

6. A nearby foreclosure could lower your home's value. Mortgage rates are highly sensitive to a home's value versus the amount of money borrowed against it. Foreclosures (and other "fire sales") bring down the Fair Market Value of every home nearby. This leads to higher loan-to-value ratios and, therefore, higher mortgage rates.

7. Your credit score could fall unexpectedly. Credit scores are meant to 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.

8. 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.