Extended locks and mortgage rates (loan, new home, construction)

[vauser]

Before I ask my question, I gotta say "I love this forum". I am not much of an online surfer (despite my profession requiring many hours of work in front of a machine!) and of the 3/4 sites I visit daily, this is one of them. Perhaps, the fact that I work from home and don't get to talk to people all that much (or as much as I would like) creates an extra need to "read" what people are saying as opposed to listen!

In any case, now, to my question and it appears that a new home and a relocation seems to have a never ending list of questions (at least, till we settle next Summer) -

I am looking to lock an interest rate in the next couple of months. I wish I could do it now but my settlement is way out (mid May, at the earliest) and I need to file the tax returns for this year to even kick off the loan process, so earliest I could do is February.

My question is - "am I better off locking a rate higher than the then-current rate since it would be an extended lock (and also, lock myself to the lender), or would it not be too much of a risk to wait it out and lock it 60 days prior to closing in the March/April timeframe?" Of course, I realize no one has a crystal ball (and I have to say this so someone else doesn't call out for this in response to my question!) but I would surely benefit from mere opinions, if not anything else.

I would be happy with a 4-4.5% interest rate (current rate is 4%) and don't want to end up with a 4.75% or higher rate. Also, I am looking at a 30-year fixed rate but, offlate, I've seen a lot of people opt for the 10/1 ARM, so that is something I should perhaps explore as well..

[VRE332]

look, the economy is not going to make a dramatic turnaround where the interest rate will increase your total mortgage payment outside of your budget. If a difference of 0.25% will break the bank, then you need to take out less loan to give your budget some play. Forget about the ARM and all the locking BS, how about doing a 15 year fixed instead?

[gammann]

Yeah why would you want to bother with a 10/1 ARM? Do you think rates will be lower than now in 10 years? ARMs are part of the reason some people got into trouble.

As for locks, some banks will offer extended rate locks, especially if it is on new construction. Some will make you pay for the extended rate, but I would probably look to pay it in points, rather than in a worse rate for the life of the loan. If you do a rate lock, plan for them to deliver the house late.

I agree, the economy won't recover that fast to make rates skyrocket, but it also depends on what the FED decides to do in their meetings.