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New Interest Rate Lock Inflation Protection Plan

If you’re thinking of buying a new construction home in or around Montgomery, AL, but you’re concerned about the possibility of interest rates rising while your home is being built – worry no more. Lowder New Homes is proud to offer new construction buyers our Interest Rate Lock Inflation Protection Plan (IPP).

This plan is negotiated through select Lowder Preferred Lenders and provides a nine-month interest rate lock on loans for new construction homes instead of the standard 30-60-day lock on other loans. Let’s take a deep dive into this IPP to see how new construction homebuyers can benefit from it.

What does an interest rate lock mean for a new construction homebuyer?

Interest rates for loans change almost daily. With an interest rate lock, the lender gives the borrower a level of protection from rising interest rates by “locking in” the rate on their mortgage loan for a pre-determined length of time (typically 30-60 days). This interest rate lock ensures that the buyer isn’t hit with higher interest rates while the loan is being processed and costs can be predicted more effectively.

However, the standard interest rate lock is not long enough for many new construction buyers to protect them from rising interest rates – simply because the home might not be ready to move into within 30-60 days. When the shorter rate lock expires, the buyer may be subject to interest rate fluctuations, which could change the home’s total cost by thousands of dollars in either direction.

If interest rates are trending downward, this could work in the buyer’s favor. If they trend upward (as market experts predict will happen over the next several months), the buyer may pay significantly more money over the life of the loan.

Lowder’s new 9-month Inflation Protection Plan offers new construction home buyers much-needed protection against these predicted increases in interest rates. Nine months is typically more than enough time to finish construction on a semi-custom home. By locking in a nine-month rate, our buyers can rest easy knowing that the agreed-upon interest rate will not change before closing.

Once the rate is locked, that sets the interest rate for the entire life of the loan – whether it’s 15 or 30 years for a conventional mortgage or 30 years for a Federal Housing Administration (FHA) or VA home loan.

What happens if the market interest rate falls below a locked-in rate before closing?

Locking in your rate for nine months can protect you against inflation and help you establish your budget – but what if interest rates go down during the nine months? Are you still obligated contractually to borrow at the higher interest rates?

Not with the right terms.

A select group of Lowder’s Preferred Lenders has addressed this concern by offering a one-time float down option for new construction homebuyers. If the market interest rates fall during the lock period, the float down option allows the buyer to take advantage of the lower rate.

How does the mortgage rate float down work?

  • Borrowers can only take advantage of the float down within the last 15 to 30 days of closing.
  • It’s up to the new construction homeowner to contact their lender if they notice interest rates dropping below their current locked-in rate.
  • Float down options are exercised at a fee. The mortgage rate float down option acts as a regular 15- to 30-day interest lock period in this regard, where different rates generally apply for 15, 30, or 60-day interest lock periods.
  • Lowder’s Preferred Lenders base their float down fees on rates for a 60-day interest lock period.

With the new Inflation Protection Plan from Lowder New Homes, you can shop for your new construction dream home in Central Alabama with even more confidence than before. Contact a Lowder Building Representative today to review our under-construction homes for sale and discuss the next steps towards owning your dream home.

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