loans to permanent loans
We have a construction loan that we want to convert to
a permanent loan, could you tell us what are its advantages?
have what's known as a construction-to-permanent loan. The advantage of this type
of loan is that there's only one loan application and one loan closing. The idea
is that the lender finances the construction of your home, and when it's ready
for occupancy, the loan is converted from a construction loan to a mortgage.
You pay a
price for that convenience. You are a captive customer and don't have a lot of
negotiating leeway when presented with the interest rate on the permanent financing.
Decisions about the loan term and fixed vs. adjustable mortgages are made when
you close on the loan prior to construction. You're also assuming a financial
risk that the house is well-built.
loan will typically be priced with interest rate locks that limit the interest
rate on the permanent loan. Alternately, the loan can have a float-down option
that will let the borrower take advantage of declining interest rates. A float-down
option can have an interest rate floor that limits how low the interest rate can
If you can get a better rate by finding a
new lender, then refinancing can make sense. Whether you convert to permanent
financing before refinancing depends on how long a window you have before the
construction loan has to be converted.
can avoid paying the $350 conversion fee, you can use the money toward closing
costs on the refinancing. Use Bankrate to shop
for the best rates in your market.
your loan and any rate lock agreements to make sure there aren't any prepayment
charges, minimum loan term commitments or other charges or penalties. If there
are, then the decision to refinance becomes more complicated, and you should hire
a real estate professional to help you evaluate the decision.
If it's clear sailing on a refinancing, then use Bankrate's
refinancing calculator along with an estimate of the closing costs on the
new loan to determine how many months it will take for the monthly savings to
pay for the closing costs. (This is also known as the payback period.)
If you only plan on being in the house for a few years,
you shouldn't be willing to refinance with a loan that has a long payback period.