Rising mortgage interest rates are making it costlier to buy homes. The Federal Reserve is increasing its rates on banks, and banks are passing on the costs to consumers.
Higher interest rates mean many people must either settle for homes that cost less or find ways to reduce their costs. If you are in the market for a home, the following are five timely tips that could help you offset mortgage interest rate increases.
1. Improve Your Credit Score
Unless you have a stellar credit score, you likely can improve yours. You might pay down an existing debt so that your debt ratio is smaller compared to your income.
You also should check your credit score, find out if anything is affecting it negatively and address it if possible. Paying off a lingering debt might save you many times more than that amount with a better credit score and mortgage rate.
2. Increase Your Down Payment
Many people choose to pay a minimum down payment when getting a mortgage. After all, moving into a new home is costly, and more money in your pocket makes it easier to relocate. Yet, you should try to pay as much as possible on a down payment. The smaller the amount that you finance, the more money you will save over the life of your mortgage.
3. Pay Down the Points and Lower Your Interest Rate
You might be able to offset mortgage interest rate increases by paying to lower the interest rate. Some mortgage providers will let you pay an additional amount to buy a lower interest rate. You might be able to lower your mortgage rate by a full point or more with a relatively small sum of cash.
4. Go With a Shorter Mortgage Term
Mortgages generally last for 15, 20, or 30 years. The longer the term, the more money the lender makes over that term. That additional profit only comes from your pocket. So you should try to go with a shorter term as much as possible to compensate for rising mortgage interest rates.
5. Get a Locked Mortgage Rate
A variable interest rate can carry unknown costs when you first agree to a mortgage. If you get a locked rate when you buy your home, your interest rate will never rise. You should work with a mortgage lender that will give you a locked interest rate that you can afford and will fix the amount of your mortgage payments for the life of your loan.
Any one of the five tips to offset mortgage interest could save you a significant amount of money. It is possible to do several things and save some cash when buying your dream home.