10 Tips to Beat Rising Mortgage Rates

Today’s constantly moving real estate market combined with rising mortgage rates can make even the most seasoned real estate investor second guess their decisions. This guide covers some of the strategies and tips to help you navigate the challenges that increasing mortgage rates present.

Understanding the Rising Mortgage Rate Landscape

Interest rates have been gradually climbing over the last 18+ months, making it difficult for homebuyers to secure a favorable interest rate. Higher rates don’t have to spell the end of your homeownership dreams. Careful planning and informed decisions can help you obtain a mortgage that suites your needs and budget.

Tips to Beat Rising Mortgage Rates:

1. Buy Down Your Mortgage Rate with Points

One strategic approach to lowering your mortgage interest rate is to pay discount points upfront. One discount point is typically 1% of your loan amount, but it can reduce your interest rate by aroudn 0.25%. You will want to calculate your breakeven point to make sure that purchasing points is a cost effective choice.

2. Consider a 2/1 Buydown if Buying a Home

A 2/1 Buydown reduces your monthly payment over the first 2 years of your mortgage. The first year of the mortgage your payment is based on a rate 2% lower than the note rate you locked, and the 2nd year of the mortgage your payment is based on a rate 1% lower than the note rate you locked. So what’s the cost? The cost to do this is the exact amount that you’d save over those 2 years. The cost of a 2/1 buydown can only be paid by the seller or builder.

3. Look at a Shorter Loan Term for Big Savings

Most, if not all, lenders offer mortgage loans with shorter terms, such as 15 years. These shorter term mortgages typically have interest rates that are 0.5% TO 0.75% lower than comparable 30 year rates. The monthly payment would be higher on the shorter term loan, but you would pay significantly less interest over the life of the loan. Ensure you can comfortably manage the higher payments before opting for a shorter term.

4. Make a Larger Down Payment for a Lower Rate

A larger down payment may make your loan more attractive to lenders as they equate a larger down payment to a less risky mortgage. In addition to potentially lowering the rate on your mortgage, a larger down payment would reduce your loan amount and thus your monthly payment. Plus, by making at least a 20% down payment, you can avoid paying for Private Mortgage Insurance (PMI) on a conventional loan.

5. Opt for a More Affordable Home or Explore Rental Income

In today’s competitive housing market, starting small with a more affordable home, like a starter home or a fixer-upper, can be a wise strategy. It allows you to enter the market and build equity over time. Alternatively, you can choose a larger property and rent out part of your home to help cover your mortgage costs, making homeownership more manageable.

6. Qualify for a Different Loan Product

Exploring various loan types, such as conforming, FHA, VA, or USDA loans, is essential to finding the one that best suits your financial needs. Each loan type comes with its own unique benefits, so it’s crucial to match your specific needs with the right product. FHA loans, for instance, can be more accessible if you have fair or poor credit while conforming loans offer lower rates for borrowers with excellent credit. VA and USDA loans also have specific eligibility criteria.

7. Work with a Mortgage Broker for Wholesale Rates

Consider working with a mortgage broker rather than a traditional bank or lender. Mortgage brokers work with dozens of lenders, ensuring they can offer competitve rates and terms. They often secure loans at wholesale pricing and pass on savings to borrowers. A good mortgage broker can take care of the next tip by shopping your loan to numerous lenders at the same time.

8. Make Lenders Compete for Your Business

Shopping around among different lenders and loan products is a wise tactic that can lead to a better mortgage rate. Since rates have risen, lenders are eager for business and more likely to compete for your loan. Use this to your advantage by negotiating for a lower interest rate and/or lower closing costs. To save yourself the time, work with a Mortgage Broker who can do the shopping for you.

9. Improve Your Credit for Optimal Rates

One of the most effective ways to secure the lowest mortgage rate is to ensure that you qualify for it. This can be achieved by checking your three free credit reports and addressing any errors. Additionally, paying down credit cards and other debt can improve your credit score, making you a more attractive borrower in the eyes of lenders.

10. Buy Now with a Higher Rate and Refinance Later

Consider a strategic approach of purchasing your home with the current higher interest rate and refinancing later if lower rates become available. This approach allows you to secure a home in today’s market while keeping the option open to benefit from future rate reductions. It’s essential to stay informed about market trends and work with a trusted loan officer, such as T.C. Strait / Mortgage Loan Officer, to execute this strategy effectively.

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Should You Be Worried About Rising Mortgage Rates as a Homebuyer?

While rising mortgage rates can lead to higher monthly payments and increased total interest costs over the life of your loan, experts advise against panicking or making rushed decisions. The key is to focus on your financial readiness and ability to make mortgage payments comfortably.

The Current Mortgage Rate Perspective

Although today’s mortgage rates are higher than they were in recent years, they are still historically low. Borrowers can benefit from these rates, especially when compared to the rates of the past. In the late 1980s, mortgage rates reached an all-time high of 18.63%, making today’s rates seem relatively favorable.

Mastering the Mortgage Rate Game

While rising mortgage rates present challenges, homebuyers have numerous options at their disposal to secure favorable mortgage terms. By carefully evaluating these options and staying informed about market trends, you can make informed decisions that align with your homeownership goals.

The key is to focus on your unique financial situation, long-term plans, and the overall benefits of homeownership, rather than solely obsessing over interest rate fluctuations. Keep in mind that even a fraction of a percent reduction in your mortgage rate can lead to significant long-term savings, making the extra effort well worth it.

Consult with a mortgage expert to determine the most suitable strategies based on your specific circumstances and goals.

Don’t let rising rates hold you back. Get your free, no obligation mortgage rate quote today. Let’s find you the best rate for your new home!