How to Fight Rising Rates

How can you a buyer in combat rising interest rates? Here are the 6 methods our team recommends to fight those rising rates and become a homeowner!

The first thing to realize is a very important factor and that is PERSPECTIVE. The reality is the current interest rates are still historically low when you think about we have “short term” memory. We remember the rates of the last few years were artificial rates and because of COVID mortgage rates took an all time dip in order to spike the economy during such an unknown time we were in. Now buyers are thinking, they want to wait until those rates come back around and the truth is you will be paying more for a home the longer you wait and regardless of a “lower” interest rate you will be spending the same amount by waiting. And there is no crystal ball to determine rates will ever go that low again. By waiting, you might now be able to afford the home you want and stay a renter. Long term buying is always the smarter financial decision and if you can buy regardless of interest rates YOU should buy! Now, let’s get into our methods to combat rising rates.

Method #1: Clarity is Power

Know exactly what the current interest rate truly is not what you hear on the news or by a friend. The best point of contact for the most accurate rate for YOU, is a local mortgage lender. Ask them, based off of my situation, my debt to income and my credit score what interest rate can I get. The overall interest rate is based on many factors and your individual financial portfolio could mean you can have a lower or higher rate so seeking clarity from a lender is the best way to know what your interest rate truly is. Another important tip is remember that you can’t lock in to that interest rate until you go under contract.

Method #2: Buying Down Points

What does it mean when some says you can buy down points? This process is when a seller or a buyer can provide upfront interest to the lender in order for them to lower the interest rate. This is a case by case scenario because you want to determine at what point are you breaking even.

How much does this cost? It’s typically 1% of Purchase Price. For example, $400,000 x 1%= $4,000. In order to lower your interest rate anywhere from 1/8 to 1/4 of a percent. For example, $400,000 x 1%= $4,000. $4,000 will lower your rate by 1/8 to 1/4 of a percent. How much savings does that result in? That will depend on the purchase price and an agent and lender can better explain each case scenario to you.

Method #3: Ask for Seller Credit to Buy Down Points

Now, who would pay the money to buy down the points? Typically in a buyers market, the seller would often agree to pay it. As a buyer you can ask for the seller to credit the money at closing to lower your interest rate.

Method #4: Ask for Seller to Cover Closing Costs

If you have the savings for your closing costs which you should have, and is typically a range of 3% up to 20% tempting on the loan type. If you have the savings you can request that a seller pay your closing costs and in turn use your savings to buy down points instead of towards closing cost.

Method #5: Ask for Lender Credit

Depending on your debt-to-income ratio, which a general rule of thumb is to keep your overall debt-to-income ratio at or below 43%. Consult with a lender for your specific debt-to-income ratio. Some lenders can offer a lender credit, which can sometimes cover some if not all of your closing costs. Similar to the last method you could use that down payment instead of going towards closing costs but could go towards paying down points.

Method #6: Put More Money Down

This is the simplest way to combat interest rates, you would put more money down and finance less money and therefore would have a lower mortgage rate monthly.

Another important thing to remember in general about interest rates, is they could go down again and if and when that would happen you would have the option to refinance. What is refinancing? When you refinance your mortgage, you replace your current mortgage with a new loan. The new loan might have different terms — moving from a 30-year to a 15-year term or an adjustable rate to a fixed rate, for example — but the most common change is a lower interest rate.

But what if it doesn’t go down you might be asking? If it doesn’t go down then it will go up, so why not secure it at a lower rate and then now you have stability, you are building equity and wealth versus staying a renter won’t ever put you in a position to build wealth. You’re rent could go down or up as well and that regardless won’t be building you any value. So it’s either risk fluctuating rent or rates? YOU decide!

The importance of owning a home gives you security and the ability to grow into a bigger home in the future as your family grows and then downsize one day. The worst thing you can do is decide to not do anything without first seeking clarity, speak to an agent and lender and see what you can afford and what is on the market that meets that criteria, what if your dream home is waiting for you to act on it! If you want to know what your specific options are or for us to connect you with our trusted local lender contact us today and let’s combat interest rates together.