It’s no secret that housing prices are climbing, and mortgage rates are still higher than they were a few years ago.
If you’re thinking about moving to a new home this year, and you’re dreaming of a lower-rate on your mortgage, you have a few options!
Get an ARM!
ARM stands for Adjustable-Rate Mortgage. An ARM is a mortgage that gives you a lower rate for the first 3, 5 or 7 years (or more), and then the rate adjusts to whatever the current rate is, plus a margin for the lender.
That means that your mortgage may get more expensive when that adjustment occurs, or it might get less expensive. With mortgage rates as volatile as they’ve been lately, it’s hard to predict what will happen.
If you want to avoid the gamble, you may be able to refinance your mortgage just before your adjustment takes place. However, that means you may have to pay closing costs and other fees to refinance the mortgage into a more traditional, fixed-rate mortgage.
Assume a Mortgage
If you want to buy a house where the current owner has a nice, low mortgage rate, there’s a possibility that you can "assume" (or basically take over) their mortgage on the house.
This process requires that the lender approve the transfer. You will need to qualify for the lower rate based on your credit and income and other factors.
Here’s an example: If the home you are purchasing costs $700,000 and the homeowner owes just $300,000 on their low-rate mortgage, you can assume their low rate on that $300,000.
However, you still have to come up with the difference ($400,000 in this case) by either getting a second mortgage or paying the difference in cash. So, while an assumable mortgage can save you some money, you’ll have to do a lot more paperwork and be very well qualified.
3 More Ways to Lower Your Rate
There are a few other things you can do to get a lower rate on your new mortgage.
Increase your credit score! A stronger credit score can help you avoid higher interest rates, since you’ve shown that you are financially responsible. If you need help raising your credit score, don’t hesitate to reach out to one of our financial experts!
"Buy down" your rate. When you’re in the process of getting a mortgage, you should inquire about "buying down" the rate. You can pay some fees to your lender up front to lower your mortgage rate. Sometimes, you can convince the seller of the property you’re buying to provide the funds to do this. Talk to your Realtor about it!
Consider a shorter mortgage. Most people are familiar with the traditional, 30-year mortgage. But, a 15-year or 20-year mortgage may come with a lower interest rate than a 30-year mortgage, even if your monthly payments are a little bit higher. (To counterbalance this, consider making a larger down payment on the house you’re buying, if you can.)
Whatever you decide to do, don’t go it alone! Come talk to one of our mortgage loan officers about all the options, types of mortgages and making the most of your money this year!
We wish you the best with your house hunting this season!
