Thursday, August 14, 2008

Interest rate woes

Quite frankly the interest on our construction loan has been phenomenal. That rate is whatever the prime rate happens to be, which thanks to Mr. Fed Chairman, Ben Bernake, right now is 5% - wahoo! When we first took out the loan it was 6.00% and over the course of the first few weeks of the construction period it dropped 1% which really helped us out. Initially, when we first started talking about doing this the prime rate was 8.25%. So we were pumped when the Fed started cutting rates.

But, now for the bad news, the 30-year mortgage rates have only gone up and up over the past few months because of all the fall-out from the subprime mortgage scandal and today the 30 year was 6.43% which isn't too bad. Unfortunately for us, because our loan will be over the $417,000 cap to be insured by Freddie Mac or Fannie Mae. What that means is, we have to get a "jumbo" loan for any amount over the $417,000. The jumbo interest rate is what is going to kill us. Today the jumbo rate was 7.61% - yikes!

We have some other options like 5/1 ARM or a 3/1 ARM both of which kind of scare me, but if oil prices keeping leveling out and the dollar keeps going up that may be the way to go and then when the interest rates fall to a more palatable point we can refi and lock in a better rate in the long run. But I did find out from the lender that if you do an ARM you better not do a Home Equity loan because you could find yourself in a big bind when you do go to refinance. We found out the hard way that once a "home equity loan" always a "home equity loan."

I guess like the stock market, everything is a gamble. I just hope we don't crap out. (That's a pun for those of you that visit Vegas...) 7 - get it, 7 is a bad number here! :-)

Keep your fingers crossed!

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