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Buying a home can be challenging these days. Home prices remain high, and interest rates have risen significantly compared to a few years ago. Actually, according to Freddie MacThe average rate on a 30-year loan is now approaching 7%
Will rates remain high for the foreseeable future? There’s no way to tell for sure, but if they do, there’s a way to get close to them.
Find out what today’s mortgage rates are here.
What to do if mortgage interest rates are high
If you’re looking to buy a home but high mortgage rates are holding you back, here are strategies that can help.
Buy now, refinance later
A clear alternative is to buy a home now, at today’s rates, and then Refinance your loan When interest rates inevitably fall.
According to Robert Esposito, director of sales at RelatedISG Realty, Mortgage refinancing This is an especially good option for those looking for average priced homes, as their value will only increase in value over time.
“They will face the most competition,” Esposito said. “A property worth $500,000 today may be worth $600,000 a year from now, and then you realize you haven’t saved any money.”
Check out current mortgage rates here to start exploring your options.
Make a big down payment
make a big Down payment Can help in two ways. First, “it can offer lower interest rates,” said Sam Sharp, executive vice president of national sales at Guaranteed Rate.
It will also lower your total loan balance and help you avoid private mortgage insurance, which means lower monthly payments.
“Making a larger down payment lowers the total loan amount and interest rate,” says Esposito “This makes you eligible for better loan terms or even to avoid private mortgage insurance altogether.”
Consider different loan options
Another option is to explore less common mortgage products. Adjustable rate mortgages, for example, offer a lower than fixed rate for the first few years of the loan. If you only plan to stay in the home for a few years — your rates may go up, but they’re good.
“After years of working with buyers at every stage of life, we find that most people overestimate the amount of time they will live in a property and thus end up with a higher rate than necessary,” says Lindsey Barton Barrett, a licensed associate. Douglas Elliman Real Estate Broker. “If you can get an ARM, you can save a lot — even if you’re past the adjustment date. What happens is you pay a higher mortgage rate for one year out of five years versus a higher rate for six years.”
Getting a short-term loan can help, too. For example, according to Freddie Mac, the current average rate for a 30-year loan is 6.71%. With a 15-year loan, however, the average drops to just 6.06%. This can save you quite a bit in the long run. Just keep in mind that the shorter payoff timeline means you’ll have more payouts.
Start comparing your loan options online today.
Hold off and make improvements to your current home instead
If you already own a home, tap your equity a Home equity loan, Home Equity Line of Credit (HELOC) or Cash-out refinancing There may be other strategies. These allow you to borrow against your home equity, which can provide funds for improvements or expansions to your current home as needed.
According to corelogic, the typical homeowner has a whopping $274,000 in home equity, so this can be a viable option for many. However, it depends on where you live. If you live in a condo or a tight urban area, for example, there may not be room to stretch out.
Using your home equity means taking out more loans, often at variable rates. These rates can be volatile, especially as the Federal Reserve continues to fight inflation.
“A variable-rate home equity line tracks higher interest rate numbers because they’re tied to factors like benchmark rates, which are currently very high,” Barrett says.
Check out today’s home equity rates and find out how much you might be able to borrow.
Buy your rate down
Buying lower your rates may work as well. In this situation, you buy “points” – usually 1% of the loan amount – that lower your interest rate by a nominal amount (usually 0.125% to 0.25%).
“In recent years, we’ve found it very common for buyers to purchase points, which serve as prepayment interest and lower the overall interest rate on the mortgage,” Esposito said.
Some lenders also offer temporary buyouts, where a seller or lender pays to lower the buyer’s interest rate for a period of time. After that, it goes back to the normal rate.
“This would allow for a credit from the seller that would pay the difference in interest on a loan over one to three years, resulting in a temporary rate reduction of up to 3% below the market rate,” Sharp said. “It’s a great way for homebuyers to lower monthly payments.”
Wait for rates to drop
Finally, you can always Wait for it. As they say, “what goes up, must come down,” so Mortgage rates will inevitably fall In some cases. The question is when.
Fannie Mae’s forecast Currently project rates will end 2023 at an average of 6.3%. The The Mortgage Bankers Association predicted A big drop of 5.8%.
However, these are not guarantees. And even if rates go down, that could mean more buyers in the market, which could push up home prices.
“If rates come down because inflation is under control, the economy as a whole will be more stable and lend to confidence,” Barrett said. “With more purchasing power and confidence in the market, home prices will rise – meaning many will miss out on opportunities to buy real estate.”
Ready to look at your mortgage options? Get started by checking today’s rates here.
Every situation is different
There is no clear strategy for dealing with today’s high mortgage interest rates. The right course of action for you will depend on your goals, your budget and your personal situation, so be sure to speak with a mortgage professional before deciding how to proceed.
And once you decide to move forward, don’t forget to shop around for your mortgage. Guess Freddie Mac That can save you up to about $1,200 per year by getting at least four rate quotes.
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