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Should you lock in your construction loan before you start building or let the interest rate float?

If the rates are heading upward, lock. If the rates are expected to be stay the same, relax and if the rates are headed downward, float.

Prior to 2008 locking or not locking upfront used to be an easy decision but with the changes in the real estate and mortgage industry it has become more of what you can get versus what you really want. Banks have tightened up their underwriting guidelines over the past year and I'm sure there are more changes to come.

Conforming loan amounts for construction loans (below $417,000) you can still get a great upfront lock in rate. So I would say lock in upfront for conforming loan amounts.

Jumbo construction loan amounts are a completely different story. Larger construction projects take anywhere from 12 months to 2 years to complete so the banks are currently charging larger lock in fees and well as the jumbo rates are currently (on average) a whole point higher than conforming rates.

The better way to go if you are building a larger project is to take advantage of the Prime Rate construction loans since the rates are at an all time low of 5%. Call me and I will tell you about an available construction loan that is below the Prime Rate.

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