I have been interested in buying a property or properties for some time and saving money while also watching the gut wrenching sub-prime market meltdown. I have worked very hard to maintain good credit and reduce debt levels, etc. Interest rates are inching upwards as noted here: Mortgage rates leap on Treasury weakness - MarketWatch
It seems as if any advantage that I would garner from saving an appropriate down payment is slowly being negated by ratcheting interest rates. After all a point or two adds up over the years. Is there a way that I can “lock in” an interest rate for a home loan, sort of like an option or stock future? If so, would this be a good idea?
You can’t lock in a rate until you start applying for loans (and then the lock-in period is usually conditional on completing a purchase within a month or two.)
However, you can always refinance in a few years when rates are more favorable. You’ll be out some interest in either case – whether refinancing makes sense will depend on your specific situation.
If you definitely will sell in less than five years, consider an ARM. These are better suited to people who are investing/flipping.
The ARM comes in under the current rate and won’t reach the current rate for a few years, if at all. A fixed 30 year mortage is best for someone staying in the home for the long haul.
FAQ:
Why wouldn’t more people get ARMs? Because the ARM could climb well past the locked-in rate of a 30 year traditional loan, or could be costly to refinance.
Actually, alot of people got ARMs and the rates went up after a number of years and past what they could have locked in. These people probably should have secured traditional fixed rate mortgages, since they were staying in the homes for the long haul, AND since mortgages are down near historic lows anyway.
No, this wouldn’t be a “flipper”, I would want to live there as permanent residence. I just thought that possibly there might be a way to lock in a rate, given the huge number of financial instruments out there.