When mortgage interest rates increase, it can make purchasing a new home more expensive. However, if you are in the market for a mortgage, rising interest rates don’t have to be an obstacle. Working with an experienced mortgage loan officer is the first step towards purchasing your next home, and they can help you navigate these different economic variables. Let’s take a closer look at how you may be able to mitigate the extra expense of higher interest rates.
Increase Your Down Payment
If possible, making a larger down payment may help you capture a more favorable interest rate. When a higher percentage of the home’s purchase price is put down in cash, it makes you less of a risk to your lender, which may result in a lower interest rate. If you make a down payment of at least 20% you also avoid having to pay PMI (private mortgage insurance), making your monthly payments even lower.
Improve Your Credit Score
A higher credit score not only makes it easier to qualify for a mortgage, but it will make the terms of your loan more favorable. Before you get pre-qualified for a mortgage be sure to check your credit score and all three credit bureau reports to make sure everything is accurate. If you discover any issues, resolve these before applying to ensure the highest possible score.
Buy Down Your Interest Rate with Points
Buying down your interest rate with discounted points can save you money over the life of the loan. Each discounted point is typically 1% of your mortgage’s total. For example, if you are borrowing $200,000, one point would cost $2,000 and lower your interest rate by 25 basis points, or ..25%. You can calculate how much to buy down by dividing your total discount costs by your monthly savings due to the lower rate, revealing how long it will take you to break even. Your loan officer can also walk you through the different scenarios depending on how much you want to buy down.
Consider an Adjustable-Rate Mortgage
Adjustable-rate mortgages may be an attractive option when fixed-rate mortgages begin to rise. The terms of this type of loan feature a lower than market introductory rate for a specified period of time, typically between three and ten years. However, after this introductory period, your rate usually increases, resulting in higher monthly payments.
For over 90 years Standard Mortgage (NMLS#: 44912) has helped homebuyers find the best mortgage solutions for their needs.