Mortgage rates have been on the rise throughout 2022. And while that’s bad news for home buyers, it doesn’t have to be the end of the line. There is actually a lot you can do to counteract rising interest rates and get a better deal on your mortgage loan. The problem is most agents either don’t know about these things or are so stuck in conventional loan mode that they forgot these other things existed:
Here are a few strategies that buyers can use to their advantage:
Buying down your rate with points
You can lower your interest rate by paying for discount points upfront. Each discount point costs 1% of your loan amount. If you are seeking to borrow $300,000, for example, one discount point would cost you $3,000 and would typically lower your rate by 25 points, or 0.25%. Lenders set their own pricing, so your saving could be more or less, but this is an option that a lot of buyers (and their agents) don’t even know exists.
Look into an ARM with low intro rate
In early September I wrote a blog all about ARM’s and their pros and cons. (READ the article here) In this instance, it could be a great option for avoiding the higher rates. Many lenders offer ARM loans with lower “teaser” rates that are fixed for a set period – typically the first three, five, seven, or even ten years of a 30-year-loan. This makes sense if you plan to live in the home for a shorter period of time, or you can simply plan to re-fi your home when the introductory rate comes to an end.
Use a shorter-term loan
Many lenders offer loans with shorter terms such as 15 or 20 years. Generally, a 15-year loan will come with an interest rate of 0.5-0.75% lower than comparable 30-year rates. Keep in mind that your monthly payment will of course be higher with a shorter-term loan, but if that is feasible for you, then this option could save you a lot in interest.
Work with a mortgage broker
By working directly with a mortgage broker rather than a bank or lender, you may be able to secure a more favorable rate. A mortgage broker can place borrowers into the best program for their needs. For example, instead of walking into a bank and settling for what they are currently offering, a mortgage broker can place you with the partnering lender who has the best deal. Also, mortgage brokers often get their loans a wholesale pricing and pass much of the savings onto the borrower, so it’s a real win-win.
The moral of the story is to explore your options. The real estate space has come up with some pretty unique solutions to the temporary rate hikes, you just need to work with people who know about them.