Friday, March 18, 2011

Interest Rate Lock.

Seeing as how there isn't much to talk about regarding the house, I want to document our "rate lock in" process.  Not my most interesting post, but it will surely inform someone in the blogosphere. 

The floor plan was advertised with 10k in free upgrades.  Awesome, but... the advertised $10,000 "free" upgrades is tied to using the builder's lenders.  I did shop around a several banks bit before committing - to ensure we weren't shooting ourselves in the foot.  However, even with the bank's lower rates, when we calculated an additional 10k to the sales price - going though the builder was a no brainer.  

Here has been our timeline thus far:
  • Jan 15:  Looked at about 7 re-sell homes.  Loved one, but not enough to pull the trigger. 
  • Jan 23:  Looked at a few new construction models with B builder.
  • Jan 30:  Looked a few new construction models with H builder.  Made offer #1 that day.
  • Feb 1:  Heard back that offer #1 had been countered.
  • Feb 2:  Adjusted our offer and re-submitted it with earnest money.  Accepted that same day. 
  • Mar 5:  We hit our 90 days before closing (June 2).
  • Mar 10:  We locked in our interest rate at 4.875%.

Things to consider:
  • The interest rates change daily.  
  • The price (aka: points) to lock in change daily.  (especially when you're considering a 90, 60, or 30 day lock).  These points also change based on the market.  (the bank's gotta make money...)
  • Since we started watching interest rates on mortgages they have slowly been on the rise, so we were all for a 90 day lock as long as we could get it for a reasonable price.

On the day we locked in, we got the 4.875% interest rate for the price of 'half a point'.  A point = 1% of our total home loan amount.  Because we're putting down a hefty down payment (15%), our lock in cost was $1,007.
We called our lenders once or twice per week long before our lock in date to "check in" with what the market looked like and what the rates were doing.  A week before we locked in (March 3rd) we were told that it would cost us around $2,000 (approx 1 point) to have a 90 day lock at 4.875%.  We were thrilled on the 10th when the cost was down to a half point.  

photo from here

With what happened in Japan the next day - I'm not sure the market did, or how interest rates were effected.  I have made a point not to even look so I wouldn't kick myself for locking in 'early'.  In the end, we consider that $1,000 to be like insurance.  If interest rates go up, we're covered... and if it goes down - we know we can be happy and can afford our monthly payments with a rate of 4.875%.  

p.s. I promise the next post will come with less text and more pictures.


  1. We just locked in our rate on Tuesday, after the Japan disaster. You're not that far off, so I wouldn't worry about it too much!

  2. i love these kinds of posts! people think houses are all decorating and butterflies, but interest rates and mortgages are SO freaking important. we actually locked it at 4.875% too, and that was almost exactly a year ago. anything sub-5 is amazing, so even if rates have gotten lower since japan, don't kick yourself. people will be amazed at your interest rate for years to come, everyone in our family is jealous of ours lol.

  3. My co-worker told me when she was looking to buy (a long time ago!) that the interest rates were about 16%. I almost choked! We would have NEVER been able to afford to buy with rates like that.
    And yes, I have learned so much from this process about mortgages, interest rates, etc. It's been such a learning time! And fun!