Q: There is a brand new $518,000 townhouse being built near San Francisco that I’m interested in buying. The only problem is that it will not be ready for move in until March or April of next year.
With interest rates on their way up and the very likely chance that it may not be ready when the developer says it will be, I’m leery about making an offer.
The 30-year interest rate is already at 6.5 percent. I like the place but my gut says back off. What should I do?
A: I’m usually in favor of following your gut instinct. But in this case, you may simply have a case of buyer’s remorse — in advance.
There are many other sorts of mortgage loans available other than a 30-year fixed rate mortgage, which is the most expensive because you’re paying for the stability of the payments over the life of the loan.
However, other loans will cost you a lot less money. For example, a 5/1 adjustable rate mortgage could cost a full percentage point less than a 30-year loan, and will have payments that are fixed for the first five years. That will give you some cushion, and should ease your fears of never being able to eat out again.
You may also find that some lenders can offer a float-down option on your loan. On a float down option, the rate on your loan when you close can’t be higher than a certain number, but you get the benefit of any rate reductions once you are able to lock in the rate of your loan.
I’d talk to several local lenders about various possibilities and how much each will cost now and over the time you plan to live in the home. Still, you’re the one who has to sleep at night. So, do some investigation and find out if there is another kind of loan that will work for you.
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