New construction delay causes buyers to worry about rising interest rates

Private mortgage banker: Harry Sessa

Purchase price: $800,000

Loan amount: $640,000

Loan type: Jumbo non-conforming 7/1 ARM

Backstory: Harry Sessa worked on a mortgage loan for a client buying a new condominium. The application initiated in May of this year.

The property is a conversion of two existing town houses into four individual condo units.

Sessa’s clients, the construction company and the Realtors all estimated the renovation time frame to be no more than six months. Unfortunately, administrative delays in getting the certificate of occupancy (CO) delayed them from closing on time.

Sessa had recommended the borrowers pay an upfront “extended rate fee” to guarantee their rate for six months. Unfortunately the CO delays pushed the closing past the six months lock in period.

The clients were faced with the need to extend the rate for an additional time period. The cost of this extension was approximately $100 per day resulting in a cost of more than $2,000. In this economic environment of rising rates, it was well worth the cost to extend as the current market rate had gone up over a half percent since they locked their loan.

Sessa recommended the borrowers contact the Realtor and construction company, who were more directly involved in monitoring the delay in an effort to have them share in the cost of the extension.

After some negotiation with the construction company, they agreed to pay 50 percent of the extension cost, which resulted in a cost of more than $1,000.

By paying the rate lock extension fee, Sessa’s clients will save more than $30,000 in interest during the first seven years of the loan.

Sometimes buyers lose sight of the long term benefit of getting a rate extension verses the cost. In this situation, based on Sessa’s advice, the clients spent approximately $1,000 extra to keep the low rate locked in more than six months ago.

Assuming they stay in the property at least seven years, the borrowers will they be saving thousands of dollars in interest because of the rate extension.

Harry Sessa, United Bank, NMLS 632510, 203-494-1478