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Posted: 11/2/2009 8:53:17 AM EST
If anyone is in tune with the home lending industry...

I am closing on some land at the end of this month. While finalizing the loan package, I have the option to lock in the current interest rate, or float it until closing.

Should I lock in the interest rate today, planning that the rate will go up? Are rates headed down, should I wait 20 more days and try to get a lower rate? Please advise.

Loan details:
- 2 year ARM
- 20 year term
- local lending organization (read money stays local)
- Not currently fantastic rate, but acceptable
- Planning on building a house on the land within the next 24 months, so the land mortgage + construction loan will be rolled into a 30 year fixed mortgage.

While I could shop around for the absolute best rate, I am sticking with this lender for many other reasons.

Thanks for your free advice.
Link Posted: 11/2/2009 3:28:31 PM EST

Lock periods are typically in 15 day increments (i.e. 15 day, 30 day, 45 day, etc) with the 30 day as standard. There's approximately an 1/8th percent difference in rate between the different lock periods. Depending on the loan amount involved, the difference in payment could be minimal. The "lock vs. float" question is difficult, especially in this market. Rates are based on the bond market and do move daily but the fluctions are usually small unless there's some major unforseen financial news or some other calamity.

I think the bigger issue would be taking a two year ARM. Rates have been very good over the last year but the forecast is for massive inflation and sky rocketing mortgage rates in 2011 and maybe sooner. The amount of printing and borrowing by our government should start to catch up to us by then. See if your lender has a 30 year program even if the rate is a little higher. You'll pay a little more for the security but I think it will be worth it in the long run.

In the mean time, send me your email and I'll shoot you back a couple of industry market watch sheets I subscribe to. So there's no misunderstanding, I've been in the mortgage business for 15 years but am not soliciting your business, I don't do land/lot loans and don't even know what state you're in. Just thought I'd pass along some unbiased information to someone that shares the same interests.

Stu Magid
Link Posted: 11/2/2009 5:45:00 PM EST

Just as a comparison...I locked my mom in at 4.99% for 30 years fixed. Down from a 7.5 5 year ARM.
No closing costs, no nothing. Her payment will drop $100/mo just for signing her name.
Link Posted: 11/3/2009 12:43:22 PM EST
Everything that I look at is saying rates are about 99% sure to go up in the next months/years if we can't find another way to get out of this debt.
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