How to reduce interest rate risk when you are building a home

Published on Jul 08, 2022

How to reduce interest rate risk when you are building a home

As the construction market makes a comeback, you might be thinking of building your own dream home. But in an uncertain economy and with interest rates on the rise, you’ll want a financial solution that reduces your financial risk.

Introducing – the Power of One. With a single-close construction-to-permanent loan from Valley, you make monthly interest-only payments on advances during the construction phase, followed by monthly principal and interest payments during the permanent phaseat the interest rate agreed to in your mortgage note. Other banks may require you to apply for a separate permanent loan after the construction is completed where you face the risk of not qualifying for your second loan.  And if you do qualify, it may come with a higher-than-expected interest rate. 

The downside of multiple construction loans

The traditional construction loan process can be very stressful for borrowers because it usually involves taking out multiple loans: one short-term loan to cover construction costs and then a second loan for long-term financing.

This cumbersome process means that you must apply for and qualify for multiple loans, sometimes work with multiple lenders, and pay for multiple closings (averaging 3 – 6% of loan cost). And if your financial situation changes between loans – you could lose your job or encounter unexpected expenses – you might not qualify for the second loan. In that scenario, you could pay to build a house that you never get to live in!

Additionally, interest rates may rise between your first and second loan, which could make a significant difference in the amount you pay for your loan over time.

The benefits of single-close construction loans

Single-close construction loans (also referred to as construction-to-permanent (CTP) loans or all-in-one loans) simplify this process with the power of one – one application, one approval, one closing and one set of loan documents that spells out everything up front. This takes a lot of worry, stress, and risk out of home construction.

Some of the advantages of single-close construction loans include:

Valley helps home builders

If you’re considering building your own home, talk to Valley’s construction loan experts to see if our single-close construction-to-permanent loan is right for you. Learn more about our single-close construction loans or contact us today. We’d love to help you build your dream home.




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Construction Financing

Construction Financing

Working as a team with you and your builder, we will assess your plans, timetables and all costs associated with your new home to find the financing option that’s right for you.

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