Interest rates suck. They are higher than they’ve been in years, so thinking about locking that pain in for years to come in the form of monthly mortgage payments is not a warm fuzzy. That’s making a lot of people sit tight, and rightly so! But not everyone has that luxury, so if you’re looking to purchase a home in this economic environment, you may not like what you’re seeing. But fear not! All hope is not lost. We’ve got some tips for how you can minimize the damage.
Here are Five Fast Facts on navigating high mortgage rates:
- 🔍 Proper Perspective - First off, let’s have some perspective. Interest rates right now are around 7-8%. That’s a lot more than the 2-3% from pre-pandemic, but it’s not remotely as bad as the historic highs of 18-20% back in the late 1970s or early 1980s. So it could be worse!
- 📉 It’s The Principle - One thing you can do to ease the pain a bit is to reduce the mortgage principle (meaning not the interest). Increase your down payment, buy a home a little further out of town, or consider a fixer-upper. All of those things will help reduce the amount you have to finance.
- 🗺️ Have A Roadmap - Make sure you have a plan! Just because the rate is high now doesn’t mean it’ll stay that way (odds are good it won’t). So plan to refinance when it becomes beneficial, meaning when your lower rate will make up for the cost of the refinance (usually around $5k dollars). With refinancing, it’s not “location, location, location” so much as “timing, timing, timing.”
- 🔧 Make Adjustments - There are a number of adjustments your lender may allow. A mortgage buydown lets you pay more upfront to get a lower rate, and recasting is where the lender may recalculate the monthly payment based on remaining balance (this could work if you’ve been paying for a while, or if you drop a big cash payment). The point is, there are options, so ask your lender and see what you can work out.
- 👍 Tried And True - There are some “old fashioned” ways to save. Build good credit scores, avoid taking on debt, and shop around for the best terms. And of course, if you make extra payments to the principal it will save big bucks in the long run.
🔥Bottom line: No matter what the rate is that you sign for, make sure you can make the payments. All of these other tips are great if you can make them work in the future…but none of them are guaranteed. Don’t get yourself in over your head now, make a plan for the next step or two, and you’ll likely navigate today’s rates just fine.
What do you think of mortgage interest rates?
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