How to Secure the Best Possible Mortgage Despite Rising Interest Rates

By December 13, 2016News, Uncategorized

The election of Donald Trump has had a major influence on interest rates, with rates on 30-year conforming mortgage increasing by more than 50 basis points to levels the public hasn’t seen in more than two years.

In real terms, the movement in rates so far has increased mortgage payments by 7 percent. On a median-price home, that shift amounts to more than $750 in additional interest per year.

With rates more likely to go up from here rather than down, offers these tips on how potential buyers can secure the best rate possible on their mortgage.

Ask for discounts

Leverage potential rate discounts from financial companies that already provide you services. Your loyalty could be worth a better rate.

Improve your credit score

If your credit is less than excellent, increasing your score by 25 basis points could result in a rate that’s lower by 10 basis points. Higher credit scores mean lower risk to lenders, and lower risk translates into lower rates.

Pay for a discounted rate

Lenders often will offer a lower rate for a fixed fee paid upfront called a discount point. You can do the math to see if the cost of the discount is worth the lower payment you would receive as a result.

 Put down more money

The payment is a function of the loan amount, which is what is left over when you subtract the down payment from the purchase price. The more you put down, the less you’ll pay going forward. 

Consider a different loan product

For example, a 5/1 hybrid loan that combines the features of a fixed-rate loan with those of an adjustable-rate loan will offer a fixed rate for the first five years of the loan but then move to align with market rates each year after the loan’s fifth anniversary. The average 5/1 conforming loan rate today is more than 110 basis points lower than the average 30-year conforming rate. The reason the rate is so much lower is the borrower is taking on the longer-term rate risk. So, there needs to be a trade-off. Is the future rate risk worth the lower upfront rate? A 10/1 hybrid would maintain a fixed rate for 10 years (the normal tenure that many people live in their homes today) which could result in the best deal in terms of interest.

Pay less

Sellers are not going to be very receptive to taking a lower price just because your financing costs increased. But they might be more open to providing some funds for closing costs, maybe a discount point worth. To a buyer, $1,000 more on the price paid over a 30-year mortgage is worth a lot less than the same $1,000 provided at closing by the seller. Yet to the seller, they net the same. Just be careful that the appraised value will support the higher price. The other way to pay less, of course, is to simply find a lower-priced home.