You have options to safeguard yourself from fluctuating rates.
What is going on with the Federal Funds Rate? Most of us who keep track of this are people in the financial world or the real estate business. You may have heard that we had interest rates near zero over the last couple of years. The Federal Funds Discount Rate is what that is referring to. That’s the money that the federal government loans to lenders to finance their lending practices.
The housing market typically deals with the 10-year treasury bond. That’s the number that we look at when talking about interest rates. Many times, this number is already priced into the current rates you get from lenders based on where they think this rate from the Fed will go.
“Love the house but date the rate.”
What happens if interest rates increase after you’ve already gone under contract? Is there any way to protect yourself? If you haven’t locked your mortgage, that means you are at risk of having to pay a higher rate. At Pemberton Homes, we encourage people to plan for the worst. What that means is, if rates are at 6.5% or 7% (which aren’t that high, in my experience), you should check with your lender to see if they have what’s called a “float down” option. Then you can prevent your rate from rising if the interest rate goes up, but it can also come down if the interest rate falls.
For builders, it’s a risky environment to float the interest rate, but they often don’t have much choice, as they are at the mercy of the market. Fortunately for you, there are builder programs that allow you to lock in your interest rate, particularly on spec homes.
Since there are so many options, remember to love the house but date the rate. While interest rates may be higher right now, they will come down, and you can always refinance when that happens. If you have any questions or would like to learn more about mortgage rate locks and float-down options, don’t hesitate to call or email me. I’d be happy to help you!