Which construction loan would you choose?
I am not sure which program to pick!
1. One close loan: We would close on the loan before we even started construction. It would essentially be a 31 year loan. The first 12 months is interest only on the draw and then at 12 months it rolls into a 30 year fixed. The rate is locked at 4.5%. There is a 4 year prepayment penalty on the loan (that penalty is 1% of the loan amount). The interest rate is set by a committee at the bank- not tied to any index.
2. Two part close. A 9 month interest only on the draw loan at 5.75%. At the end of building, you refinance the loan into a 30 year fixed and then pay a second set of closing costs (of course some items you do not pay twice) at current interest rates.
My thing with the first loan is that the interest rate is higher than what we might get if we wait (or it may be same or lower, who knows!) and the prepayment penalty makes me nervous. But the one time close seems like a nice stress reducer.
The fed as forecast that they will keep interest rates low "through 2013". I am thinking we will break ground in October and move in next summer.
Which one would you choose and why?