Yes, interest rates are up from the historically low rates of the last many years, but they are still lower than the 30 average of 8%. The highest rate was in 1981 at 16.63%!!
For most people, a mortgage is the biggest financial commitment they will make in their lifetime. There are ways to save on your mortgage and make homeownership more attainable. Some are strategies that can help you save money over the life of your mortgage, and some are loan products and options that you should talk to a loan officer about.
By taking advantage of these options, you can achieve your goal of owning your own home without breaking the bank.
Here are a couple of loan options that you can consider that allow you to pay less during the first few years of your loan:
Adjustable-Rate Mortgages
Adjustable-rate mortgages, normally called ARMs, are a type
of loan that gives you the opportunity to pay lower monthly payments at the
beginning of the loan. ARMs offer an initial fixed-rate period (usually for
five, seven or 10 years) featuring a low introductory rate. ARMs can be an
attractive option for those looking to save during the first few years of
homeownership. They can be an excellent option for those who don’t plan on
staying in their home for longer than five to 10 years. And you could refinance
from an ARM to a fixed-rate mortgage if rates improve.
Rate Reduction/Buy Down/ Paying Points
Rate Reduction is a temporary buydown program. A temporary buydown reduces the interest rate
on your mortgage for the first few years of your loan.
This is also known as buying down the rate, where you pay your
lender extra money up front, and they will reduce your mortgage’s interest
rate. When you close your loan, you have the option to buy mortgage points from
your lender. One point generally will cost you 1% of your total loan amount.
For every point you purchase, your lender will lower your mortgage rate by a
certain percentage point—usually one-quarter of a percentage point.
Over the course of your loan, you could potentially save tens of thousands by paying for points when you get your mortgage. It just costs you a bit more at closing. The seller can also pay points to help offset the cost.
Shorter-term loans
A shorter-term mortgage, for example a 15-year mortgage instead of a 30-year mortgage, lets you pay less interest over the course of the mortgage as well. But instead of paying more at closing, shorter terms mortgages ask you to pay more each month.
Additional money-saving strategies
There are some simple things you can do that will help you pay less over the life of your mortgage. While these may seem small, they add up.
Make additional payments
If possible, when you make larger mortgage payments each month or make extra payments whenever you can. This will help you to pay down your principle faster and save on interest charges.
Make biweekly payments
Instead of paying your monthly mortgage payment at the end of the month, you can split that payment in half and make a payment every two weeks. This allows you to use the calendar to your advantage. You’ll end up making 26 total payments, instead of 12, which is like making an extra month’s payment each year. You’ll be paying down the principle quicker and paying less interest with this strategy.
Look for refinance opportunities
Keep an eye on mortgage rates, and when they become lower than your current mortgage rate, you can consider refinancing. Refinancing can incur lending fees, so a good rule of thumb is to wait to refinance until you can secure a rate that’s at least 0.5% lower than the rate you have.
Being money-smart with your mortgage
With rising rates, and historically high home prices, you should look for any way to save on your mortgage that you can. As you can see, there are many opportunities to do that in a variety of ways. The best way to pursue any of these affordability hacks is to talk to a loan officer about them. Some may work better for you than others.
My preferred lender of over 30 years is Brian Yotz with Caliber Home Loans. Call or email Brian to get more details about current rates and loan programs.
Brian.yotz@caliberhomeloans.com
206-718-9080