Mortgage rates have surged. Here’s how to get a lower rate

newsofmax07/11/2022

6 4 minutes read

Mortgage rates have surged. Here's how to get a lower rate

A real estate agent stands in the doorway as Giovani and Nicole Quiroz of Brooklyn, New York visit an open house in West Hempstead, New York.

Raychel Brightman | Newsday LLC | News | beautiful pictures

After falling to record lows in 2020 and 2021, mortgage rates are on the rise again. Uplink. While the past few weeks have seen a reversal in the rise, at nearly 6%, current mortgage rates are still almost double what some homebuyers have paid in recent years. With inflation soaring and the possibility of further rate hikes, homebuyers may be looking for ways to lower their rates.

Here are five possible money-saving options.

1. Try to increase your credit score

Consumers can improve their credit scores in less than a month, says Daniel Rodriguez, CEO of wealth management firm Hill Wealth Strategies. Start by checking for discrepancies on your credit report that can make your debt situation seem worse than it really is, he says. Also, if you have cash, pay down your debt to lower your debt-to-credit ratio.

Once you’ve taken active steps to improve your credit, consider asking your lender to initiate a process known as an accelerated reassessment as a way to quickly stay up-to-date on changes. positive on your credit – usually within a week instead of 30 to 60 days.

“Anything helps,” said John W. Mallett, president of MainStreet Mortgage, a mortgage broker in Westlake Village, California.

2. Comparison shop

Compare services between multiple lenders and products. A local bank or credit union where you do important business can offer more competitive rates than a large bank you’ve never worked with before. You can also try a mortgage broker to compare rates from several different lenders.

A mortgage bank, which specializes in home loan products, may be another option. Before getting in touch, it’s best to get a basic idea of what’s available using online tools like Bankrate.com or NerdWallet.

3. Consider paying points

Mortgage score is the fee a borrower pays a lender in exchange for a reduced interest rate. Each point is equal to 1% of the total loan amount.

Here’s a hypothetical example for a $200,000 loan that includes only principal and interest. With 0 points and an APR of 4.5%, the monthly payment would be $1,013.37, according to an example from Bank of America. With one point, the buyer will pay $2,000 for an APR of 4.25% and a monthly payment of $983.88. Total savings for the 30-year loan would be $10,616.40, assuming the buyer owns the home for the full term and doesn’t refinance. With two points, the buyer will pay $4,000 for an APR of 4% and a monthly payment of $954.83. The total savings on that loan would be $21,074.40, again assuming the buyer owns the home for the full 30 years without refinancing.

Be sure to specify the numbers, taking into account factors such as how long you expect to own a home. For example, with the 2-point option, you will save $58.54 per month, compared to the zero-point loan option. But because of the $4,000 upfront cost, it will take you 68 months to break even, according to Bank of America.

If you’re going to hold onto the loan for the long term, you might be better off paying points for a lower interest rate, says Mallett.

4. Make a Bigger Upfront

Instead of 20% off, consider paying extra cash upfront. The strategy will reduce the loan-to-value ratio for buyers and potentially reduce risk for lenders, said John Keratsis, president and chief executive officer of mortgage lender Deephaven Mortgage. “This could make borrowers more favorable candidates for a lower-interest loan.”

Josip Rupena, chief executive officer of Milo, a financial technology company that offers home loans, said how much lower depends on the lender and product, but it can be as high as 1%. .

Of course, this strategy also has its downsides. You need to make sure you have enough cash to do this without depleting the necessary reserves.

5. Consider other types of loans

One option is an adjustable-rate mortgage, or ARM.

As of July 11, the average APR for a 30-year fixed mortgage was 5.75%, according to a national survey of Bank rate. In contrast, Bankrate list The average market APR on ARM 5/1, which means it stays the same for 5 years, is 5.53%. The average APR on ARM 7/1, where the referral rate has been flat for seven years, is 4.98%, Bankrate said.

Another option might be a fixed-rate-only mortgage that is amortized over 30 years and allows the borrower to pay interest only at the start, say, for 10 years. You’ll pay more over the life of the loan, but this can be a particularly attractive option if you plan to keep the property for less than 10 years, says Rupena.

When considering the economics of these types of loans, how long you plan to hold the property is an important factor prospective buyers should consider carefully, he said.