Interest rate lock-ins offer peace of mind

By Lisa Scontras
Custom Publishing Group

Experts will be watching interest-rate market conditions closely during the next few weeks to see what direction they will take — whether rates will continue to creep higher or begin to stabilize.

But a new loan product — which allows borrowers to lock in their interest rate for up to 24 months — will take the pressure off home buyers who may be worried that a rising-rate environment could jeopardize their ability to qualify for a mortgage.

“In the past, borrowers were typically able to lock in an interest rate for 30 to 60 days, while they were waiting to close on their loan,” says Carol Marx, vice president and manager of the Mortgage Banking Department at First Hawaiian Bank. “But with all the new-project developments on the Island, and a large number of buyers who are typically waiting two years for their condo or single-family home to be built , we saw a real need to create a 24-month lock. Now, buyers can have that peace of mind of knowing what their rate will be when their home is ready to close.”

Teaming up with builders at developments like the Moana Pacific on Kapiolani, First Hawaiian Bank began offering these extended-rate locks recently when rising interest rates made it difficult for buyers to make a commitment to buy a unit two years before the building was scheduled to be completed.

Doug Shanefield, Coldwell Banker Pacific Properties sales manager for the Moana Pacific, says the option to lock in the interest rate eliminates a major objection to buying new construction.

“In a new development like Moana Pacific, it’s often essential for buyers to know what the interest rate will be in order to qualify,” he says. “It’s a brand new thing that the lenders did here for the first time, and it’s a big factor for buyers.”

Eran Kennedy, marketing director at the Building Industry Association of Hawaii, points out that though interest rates are on the slow move upward, they are still relatively low — making it an ideal time to lock in a good rate.

The rate lock, according to Marx, is like an insurance plan which locks in a rate cap for a fee of generally 1 percent of the loan amount. For example, on a loan amount of $500,000, the fee would be $5,000 which is typically put towards the borrower’s mortgage closing costs. And since most terms include being able to “float down” if rates actually go down within 30 days of closing, there really is no apparent down side.

“The only real downside exists if the buyer wants to switch lenders at some point,” says Marx. “In that case, you would forfeit your deposit.”

If you’re going to buy, and you know you need a loan, locking in an interest rate today — while they’re still low — may be a wise move, she advises.

According to Marx, the typical rate change isn’t more than 1 percentage point per year, and she uses the comparison of today’s rate of 6.25 percent to that of one year ago at 5.5 percent as being typical.

“But even a quarter point makes a difference — no one wants to pay 6.5 (percent) when it was just 6.25.” says Marx, who notes that rates have actually come down a half percent in the last couple of weeks. “Sometimes, it’s just a matter of luck.”

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