Builder programs lock in today's low mortgage rates Hoping to turn
hundreds of condominium shoppers into homeowners, Chicago developers
and lenders are teaming up to offer 5 percent down payments and free
home loan “rate locks” that will offer current low interest
rates for up to 24 months, real estate experts say. According to Freddie
Mac’s Primary Mortgage Market Survey, mortgage rates in mid-March
were holding at a 40-year low. Thirty-year fixed-rate mortgages averaged
5.61 percent nationwide, and one-year Treasury-indexed adjustable-rate
mortgages (ARMs) hovered around 3.68 percent. However, only
crystal ball gazers know where interest rates will be a year or two
from now, analysts say. That’s why condominium developers have
put together programs that lock interest rates at today’s low
levels for nervous buyers who sign contracts now but might not close
until as late as early 2005. In some cases, the rates will be locked
for up to seven years. “As an inducement
to purchase a new condominium at the 99-unit Residences at 950 W.
Monroe, Garrison Partners has contracted with US Bank to offer exclusive
18-month and 24-month rate-lock programs,” says Garry Benson,
partner in Garrison Partners, a major Chicago-based sales and marketing
consulting firm. “Under the
rate-lock deal, we are paying the origination and commitment points,”
says developer Philip Mappa, a partner in MR Properties. “The
only costs to the buyer are the normal closing fees and appraisal
fees of about $500 to $700.” Mappa says the
rate quoted to the buyer at the time of purchase is fixed for up to
seven years. Buyers won’t pay more than the quoted rate during
this period, though they could pay less, if rates haven’t increased
by the time of closing. Here’s how
the Garrison Partners/US Bank rate-lock works: If you opt to lock
in rates for 18 months, you can choose from an assortment of one-year
to five-year ARM loans at today’s rates and never see a rate
increase higher than the cap – .625 percent. So if you locked
in at 5 percent today, at closing the rate could not be higher than
5.625 percent, even though rates in a year and a half might be at
6 percent. For 24-month rate locks, the cap is .875 percent. At 1111 S. Wabash,
a 34-story South Loop highrise scheduled for initial occupancy in
December of 2003, the Gammonley Group is offering a 5 percent down
payment and special financing that allows buyers to lock in mortgage
rates for delivery later this year or in early 2004, said Audra Hall,
sales manager for New West Realty, exclusive sales and marketing agent
for the development. Under one rate-lock
deal, through Mid America Bank, a buyer at 1111 S. Wabash could purchase
a one-bedroom plus den condo for $265,000 and lock-in a 4.25 percent
interest rate on a three-year adjustable-rate mortgage, or a 5.875
percent rate on a 30-year fixed loan. The lock fee,
1 percent of the loan amount, would be $2,517.50 with a 5 percent
down payment. However, the fee does not go in the lender’s pocket.
It is escrowed to pay the buyer’s closing costs. What happens if
interest rates rise by the end of 2003? “In the worst
case scenario, the rate increase is subject to a cap of .875 of 1
percentage point,” says William Arnold, a loan officer for
Mid America Bank. “So if rates take off, the buyer’s rate
could not rise higher than 6.75 percent on the 30-year fixed loan.” If rates stay
at 5.875 percent, the monthly principal and interest payment for the
$265,000 condo would be $1,489 on a 30-year fixed mortgage. If rates
rise as high as 6.75 percent, the payment would rise to $1,632, Arnold
said. If the borrower
opts for a three-year ARM amortized over 40 years at 4.25 percent,
the monthly principal and interest payment for the $265,000 condo
would be $1,091. In the worst-case scenario, if rates rise as high
as 5.12 percent, the monthly payment would rise to $1,234, he said. At Union Lofts,
939 W. 35th St., in the Near Southwest Side neighborhood of Bridgeport,
Tandem Developers, LLC and Wells Fargo Home Mortgage have launched
a one-year rate lock. Co-developers
Paul Marks and Paul Dincin say first-time buyers who purchase a $173,900
condominium with 5 percent down can own for about the same monthly
cost as renting, after tax deductions. Assuming a down
payment of $8,675 and a locked home loan rate of about 5 percent on
a $165,205 mortgage, monthly principal and interest payments for the
loft would be about $900. |