Interest rates are among the lowest they’ve been in quite some time. According to nerdwallet.com —which publishes daily mortgage rates — on October 20, 2019, the average 30-year fixed APR is 4.09%, the average 15-year fixed APR is 3.59%, and the average 5/1 ARM APR is 4.26%. While loan rates rose a bit recently, they’re still about 1.25% below late-2018 levels.
If you’ve got projects or maintenance you’ve deferred because of cost, now might be the perfect time to get a low-interest construction loan, second mortgage, or mortgage refinance to pay for those projects that could include:
- Roofing
- Paving
- Website and technology upgrades
- Equipment for business operations
Lock into Low Interest Rates
While there’s no magic formula to determine when to lock in low interest rates for a second mortgage or construction loan, now might be the perfect time — especially if you’ve got maintenance issues that would benefit from a cash infusion generated by refinancing.
But how do you find the best time to get the lowest possible rate? You can comparison shop and follow the rates in the market for a few weeks or months. Also, some lenders will negotiate a lower rate if rates lower before the closing date — and it never hurts to ask!
Like forecasting the weather, forecasting interest rate movements isn’t a perfect science. In predictive financial analysis, it’s a real challenge to estimate the interest rates which change constantly and react to many factors including other countries’ governments and banking lending trends. Financial institutions employ numerous mathematical techniques and machine learning to predict financial data performance.
What exactly are interest rates?
Interest rates are — at their basic level — the cost of borrowing money. An interest rate is a numerical value that quantifies the worth of your money in the future and helps calculate the current value of future money. Lower interest rates mean that people spend less to borrow money. These lower interest rates also increase the outflow of money from a bank.
What is a rate lock?
Locking in a rate guarantees that your lender will honor a specific interest rate — at a specific cost — for a set period of time. Mortgage interest fluctuates daily, sometimes multiple times a day, so it’s often in a borrower’s best interest to lock in a rate. Then, even if the rates jump before you close on a new loan, you’ll still receive the lower interest rate. For example: if you lock in a rate with your lender at 4.25% for 60 days and interest rates jump to 5.2% during that time, you’ll still get the lower rate.
How long can I float or lock a rate?
Generally, you can float your loan until the final day of underwriting – a period of 30 or 60 days. You can sometimes extend for longer, but you’ll likely pay a fee for the privilege. If you’re doing a construction loan, you may want to pay for an 8-month rate lock, which could save money in the long run if interest rates rise.
How much might I pay for a lock rate?
Few lenders charge a separate fee for rate locks, so you won’t see a line item charge. Lenders typically roll the cost of the lock into the rate you’re offered. If, however, you need to extend the lock period, expect to pay an additional fee.
What happens if the rate lock expires before closing?
Lenders may offer to extend the rate lock for a fee or for free. Those fees depend on the lender. When you’re doing your calculations, work back to determine when to lock the rate. For example, if you need 45 days to close your loan, plan to lock it in for a 60-day period to give yourself some wiggle room.
Collaborate with CREA United
Members of the CREA United alliance use a unique team approach to offer expert advice to people looking to purchase, sell, lease, develop, refinance, or build real estate. If you’ve got a project that you’re ready to start — but you’re not sure exactly where or how to begin — talk to us.
Connect with someone in the corporate real estate, healthcare, office property, retail property, or industrial property division at CREA United to talk to members about specific maintenance projects and to secure the funding you need to complete them.
