How to Handle Rising Interest Rates and Housing Costs
Here are 3 tips to save money when buying a home
Earlier in 2022, mortgage interest rates went up quickly; the 30-year fixed rate increased from an average of 3.22% in January to 5.1% by late April. The average rate reached an all-time high of 18.63% in 1981, so even while that is still historically low, it still has a considerable influence on monthly housing expenditures for first-time homebuyers and borrowers with adjustable-rate mortgages.
It’s also uncertain when mortgage rates will stop increasing because inflation rates are still high. If you’re looking to buy a new home but are concerned about the skyrocketing mortgage rates and high prices? Here are the best methods for beating the market and obtaining a lower interest rate on your new mortgage.
Consider an Adjustable Rate Mortgage
In the long run, adjustable-rate mortgages do include some risk. However, they frequently provide a three to ten year upfront fixed-rate period that you may take advantage of right away. Additionally, ARM rates frequently begin cheaper than fixed-mortgage rates.
A 5/1 ARM, which has a five-year fixed period and then adjusts annually based on market rates, has an average interest rate of 3.78% as of April 28, 2022, compared to a 30-year fixed-rate mortgage’s average rate of 5.1%.
Nevertheless, if you choose this course, you should prepare to refinance your loan before the fixed time expires, particularly if interest rates have decreased by then. Otherwise, your expenses can go up.
Improve your Credit
Although a credit score of 620 or above (580 for FHA loans) is technically suitable to qualify for a mortgage, mortgage lenders reserve their best interest rates for customers with scores in the mid- to upper 700s or higher.
Working to improve your credit can take time, but the long-term benefits could be significant if it can even slightly lower your interest rate.
Work with a Mortgage Broker
If you deal directly with a mortgage broker rather than a bank or lender, you might be able to get a better interest rate.
A mortgage broker helps register clients in the best program for their financial requirements.
A mortgage broker can connect you with a partnering lender who can provide you a better deal if you want a 30-year fixed rate with no points rather than going into your neighborhood bank and accepting what they have to offer.