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Lock or Float Mortgage Rate on New Construction Townhome?

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I know, I know, no one has a crystal ball, but we have some sharp people here, so I thought I'd ask...

I'm purchasing a new construction townhome with a projected closing date in late August or early September 2017. I originally visited the community in October, 2016, just before interest rates rose significantly. Of course, hindsight is 20/20...

Right now, I have a commitment from the builder's lender for a mortgage, and the loan officer is encouraging me to take a 150 day lock. The rate would be 4.625%, with a .125% credit. Their typical lock is 45 days, and the current rate for me would be 4.375% (30 year, conventional loan). 

With the fed fed due to raise interest rates next month, not to mention a whole lot of political volatility in other areas (possible repeal of the ACA, etc.), I'm wondering if I should take the extended lock. At first I thought it might be a good idea, but waiting to bring down the interest rate might save me $$$ in the long run, IF rates don't blow up over the next couple of months. 

So, any advice on the best strategy? A couple more facts about my situation...

- Paying just over 5% down and paying PMI. (Flame on, I know, but it was a nice house, in a nice area, and the home has already gone up in value way more than what I'm going to pay in PMI over the years. Plus, Northern NJ is a real expensive area.) 

- Credit score in the 760s - 770s, but hopefully rising soon. I have some debt that I will be rid of soon. 

Any advice, tips, or even constructive flames welcome.


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What do you think are your chances that you can qualify for a good refi rate a few months after closing? I would recommend that you go with the builder's lender for a smoother transaction and for whatever incentives they offer. The problem is their rates are normally higher than what you'd get if you shopped around. When I bought my house, I went with their preferred lender for the $5K closing credit. I qualified for a 4.125% rate but instead got 4.75% in exchange for another 1% closing credit. 3 months after closing, I did a no-cost refinance for 3.625%. I know it's double transaction costs but I got $10K+ in closing credits to more than pay for that. What could be hard for you is finding a good refi rate at 95% LTV.

The problem with long term locks: you pay an above market rate and (typically) there is an upfront fee for that which may (or may not) be refunded / credited at closing. You do not need to worry about locking for 150 days -- you only need to worry about a 60 day lock since your closing is in September (at the latest), so you only need to worry about the next 90 days or so.

Very rarely do the extended locks work in your favor. Yes, I know, we can all of a sudden see a November to January beatdown like we had after Trump got elected. But I think based on what the market looks like we have had stability. Case in point: had you pulled the trigger on that long term lock 2 months ago, you would be kicking yourself right now.

I say float it. And if I am wrong just give me a 5 second head start when you run after me to beat me to a pulp.....

-= MMNJ=-

I'm in the same boat, with delivery some time in November 2017. The builder's lender offering to lock the rate and they even offer one-time rate reduction if the rates go lower between now and then. I just started the process and have not seen the rates yet but verbally it's probably 4.125%. At the same time the lowest rate I can see currently on the market is 3.8%. All I'm risking is $1000 deposit to lock the rate which will be forfeited if I decide to go with the outside lender or back out of the deal completely.

I am also in the same boat

I am given 4.25% rate now
For an extended lock in , an additional 0.25 percent is needed which will bring it to 4.5 % , with $1000 processing fee.

I know that everyone is talking about upcoming fed hikes in June and September. But with the current political situation , I am not certain if those expected hikes are really going to happen

I am leaning towards float.

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