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Financing New Construction: Locking in Low Interest Rates

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There are 2 types of loans when you build a new home. There is the short term loan, also known as the “builder’s loan” or the “construction loan.” This is the loan for the construction of the home. Then, there is the long loan. This is the loan that pays for the home over a number of years. Since rates are at an all time low for this type of loan right now, it’s important to lock those rates in so they don’t’ climb on you in the coming years.

“Builder’s Best” Program

The “Builder’s Best” program acts as an insurance policy against future interest rate rises. You are able to lock in on an interest rate, based on today’s historic low rates. It can be locked in for 6 months, 9 months, or even up to a year.

The “Builder’s Best” program establishes a ceiling interest rate. That means whatever the interest rate is when the program is set up is the highest the interest rate will ever get. If the interest rate drops while the house is being built, you have the ability to adjust it to the lower interest rate, too. Once the house is 60 days from completion and the interest rate is down from what it was when the program was initially started, the buyer has the ability to re-lock the interest rate.

If the rates rise during the construction phase of the home, there is no worry of the interest rate on your loan rising. Once you lock in a rate it cannot go higher than that. You can even lock in a lower rate years down the road with a small fee.

How Much Does the “Builder’s Best” Program Cost?

Prices will vary from year to year, and even month to month. Currently, on the 10 year adjustable rate, all that’s required is a 1% deposit. Additionally, you will get that deposit back at closing. For a fixed rate “Builder’s Best” loan, there is a small fee. For example, for a $200,000 home you could expect to pay approximately $1,000.

Buy Discount Points for Additional Savings

There is a way to lower your interest rate even more and that’s through the use of discount points. Discount points are fees paid to a lender at closing to lower your mortgage interest rate. When using this strategy to bring your interest rate down, however, it’s important to make sure that the amount you’re paying for the discount points doesn’t exceed the amount you will be saving in interest.

Want to hang onto today’s interest rates tomorrow? The “Builder’s Best” program allows you to lock in today’s historic low interest rates. Even if the rates sky rocket in the coming years, you will be left paying the interest rates of today with this great program.

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