10/06/2022
Everyone is thinking interest rates. Did you know you can lock your interest rate for a longer period for new construction.
Most home buyers can get by with 45- or 60-day rate locks, but what if you’re buying new construction and your new home won’t be ready for months — or even a year? What do you do about your mortgage rate?
Most new construction mortgage lenders will allow you to lock today’s mortgage rates for periods of 180 days, 270 days, 360 days, or longer.
But should you lock in a rate so far in advance?
Timing your new construction rate lock
There have been times in recent history when locking in a 360-day rate would have paid off. For example, a home builder in August of 2021 could have locked in a 30-year fixed rate of 3 percent. Eleven months later, in July of 2022, that same home builder may pay 6% over a 30-year loan term.
Even if that extended rate lock cost $5,000, the extra cost would have paid off many times over the life of the loan.
That said, it’s very difficult to predict what will happen with mortgage rates in the future.
There’s always a possibility that rates will rise. So if you can afford the home you want now and have a chance to lock a rate, it may be wise to do so. But your lender’s policies and rate lock fees will play into the decision.
You should work closely with your loan officer to analyze current interest rates, how the market is moving, and your own home buying budget. Together, the two of you will decide when it makes sense to lock a new construction mortgage rate.
