https://www.cnbc.com/amp/2022/06/28/rising-interest-rates-cost-typical-homebuyers-16-percent-of-purchasing-power.html

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At the end of 2021, a homebuyer with a monthly mortgage budget of $2,500 could afford a home worth up to $517,500. But for the four-week period ending June 15, 2022, that same homebuyer could only afford a home worth up to $399,750 a $120,000 drop in purchasing power. The median monthly mortgage payment in the U.S. is $2,391 as of June, per Redfin's data.

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jja79 said:

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That's true of people who only look at fixed rate loans. I think it's pretty common for people to stay in houses much less than 15 or 30 years. A lot of people are looking at ARM loans right now due to the delta between those rates and the fixed rates. A rate fixed for 10 years in the lower 4's ups borrowing power or lowers the payment for people who are comfortable they won't be in a house more than 10 years, are comfortable they will have a refi opportunity during that window or that they'll be able to pay it off. Using this article's 6% fixed rate on a $500K mortgage the difference in payment between that loan and a 4.25% ARM is $539/month which is significant to a lot of people.

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Very true. I had one of my lenders call me up to give me a weekly mortgage rate update. He's been seeing people choose an ARM instead of a fixed rate. I think the ARM is a viable option for those that are planning on leaving within 5 years. Our clients are using their 2% rebate to help buy down their rate and get some of that purchasing power back.

I wonder why there is such a divergence. Aren't mortgages/MBS typically tied closely to the 10yr treasury because of early repayment risk? I'd think that would push a 10 year ARM to be pretty darn close to conventional. Any mortgage originators know?

We put ours on the bank's balance sheet so no 3rd party investor. Because of the bank's appetite for these loans the delta generally is enough to get business. 4.25% with 0 points conforming or jumbo.

You're right though about the agency ARMs.

Jed - you guys are at 4.25 on a 10 year ARM right now?

That was the rate today for qualifying borrowers on either purchase or refinance.

Jed,

How far out are you able to lock a rate for a construction-t0-permanent loan?

You lock the rate once you have a completed application, documentation including builder contract, plans, specs, budget, draw schedule, etc. Up to 24 months allowed for construction. Loan modifies upon completion at the rate locked at the time described above. Not sure if I answered your question correctly but you can lock your mortgage rate +/-24 months prior to the mortgage taking effect.

My apologies, I did not phrase the question correctly. I am already under a construction project (that just poured the foundation today) and have a current construction loan with a lender. I am really not happy with this lender and I do have two other lenders that I like way better that I have done business with. However, I am interested in what I imagine would be a refinance when the home is getting close to completion (scheduled summer 2023). I would love to get rid of the lender and do business elsewhere once the project is completed. There is a chance I could sell the build and keep my current house because I have a 2.8% rate and that is hard to beat. But this build is my forever home and I am trying hard to stick with it. I started the project in April 2021, rates were much different then and I find it criminal that the lender never told me this type of option existed just to lock me in. Ultimately it was my mistake, but the loan officer could have told me and she has been misleading on many things along the way to keep my business.

So essentially I am trying to find out how far in advance you could lock the refinance rate once we get into the later spring 2023 and I have a better known completion date. I am kicking myself for not going with the deal you described, but at the time I actually did not know that one-time close existed. I have been working overseas for years and I am out of the loop with certain things. The current lender says they can do a 120 day lock with a float down.

Obviously it is way too early but I am just trying to get as much general information as possible. Thanks.

My email is on my profile if you want to discuss this further.

We did just roll out an extended lock program to go out to 270 days on new builds. The roll out was about 10 days ago and I haven't fully immersed myself in the parameters yet but will do so.

24 months or 270l days?

Both.

I was addressing one thing not realizing he was asking something else. If we do the one-time close construction loan/mortgage as one transaction the rate is locked up to 24 months before the house is complete and the loan modifies into the permanent mortgage.

If it's a builder that carries the interim financing themselves or if the borrower has a traditional construction loan with someone else we have an extended lock that goes out to 270 days if someone is nervous about where rates may be headed.

Email sent.