In today’s real estate market, high mortgage interest rates can feel like a significant challenge for potential homebuyers to overcome. There are several strategies that can help you secure your dream home now and potentially lower your mortgage payments in the future, though.
Rather than focusing on the challenges, we like to help new homebuyers look for ways to achieve their goals despite the market fluctuations of the day.
In this blog post, we will explore some of these various strategies in detail, explaining how they work and each of their respective benefits. That way you can work with your partners in your homebuying process to further research the best option for you.
Buy Now and Refinance Later
One strategy that you might consider is purchasing a home that you’re happy with and can afford the payment for today, with the best loan option available to you. Then, if there are lower rates available to you in the future, you can refinance your home and take advantage of those cost savings.
A major benefit of this strategy is that you accomplish your goal of becoming a homeowner today, and you start building equity now. While your monthly mortgage payments are going to be higher than they might be in the future, your home’s value will also likely continue to appreciate. Because the rate of home value appreciations typically grow in excess of mortgage interest rates, you’ll end up coming out ahead because of that equity that you’ve already built up.
To make this strategy work, you’ll need to keep an eye on market conditions so that you know when it’s right to refinance and take advantage of a lower interest rate. Having an expert partner, like an experienced loan officer, is really crucial to ensuring you time your refinance to maximize your financial benefit.
Our team of loan officers can help you with that process, and our in-house Rate Rescue program allows you to get a lender credit to cover the full amount of our standard lender fees when you refinance with us in the future, helping you save even more than just the interest rate savings themselves.
Making a Larger Down Payment
Another way to deal with high interest rates is to put down a larger amount upfront, which lowers the amount you’ll have to borrow. This, in turn, equates to lower monthly mortgage payments. This can make a significant difference in your monthly budget, making homeownership more affordable and attainable in the short-term.
By borrowing less, you’ll pay less in interest over the life of your loan. Lenders often offer more favorable loan terms, such as lower interest rates or shorter loan durations, to borrowers with substantial down payments. You will even be able to bypass private mortgage insurance (PMI) requirements that are in place for certain loan programs if you put down 20% or more of the sale price of your new home.
Ultimately, the most important benefit of using this method of dealing with high rates is the peace of mind and comfort you’ll have with your monthly mortgage payment. With less interest and the absence of PMI, you’ll enjoy reduced financial stress in the short-term, with the option to still refinance later if it benefits you.
Making Home Improvements Instead of Buying a New Home
If you’re an existing homeowner looking to upgrade your living space, the idea of buying a new home can be enticing, but there’s another avenue that might be more tangible during market periods of high interest rates: home renovations.
Renovating your existing home can offer a range of benefits, both financial and personal, making it a compelling alternative to buying a new property. One powerful tool that can help you realize your renovation dreams is the 203(k) loan program, a specialized mortgage option designed to fund home improvements while keeping your mortgage payments manageable.
By renovating your existing space, you avoid having to find a new home that meets your needs, saving you an enormous time investment, and you save on the costs associated with moving too. All while keeping your payments lower than they would be if you bought a new home, and allowing you to increase the value of your current home.
Mortgage Buydown Options
Mortgage buydowns are a strategic financial tool used to lower initial mortgage payments, making homeownership more affordable for borrowers, particularly in the early years of their loan. It’s no wonder they’ve enjoyed a recent comeback with the current high-rate environment.
Buydowns involve an upfront payment, often made by the seller, builder, or even the borrower, to the lender. This payment is used to reduce the interest rate on the mortgage for a specific period, usually the first few years of the loan. By doing so, the borrower benefits from lower monthly mortgage payments during the buydown period.
The reduced interest rate during the buydown period is typically lower than the prevailing market rate. For example, a common structure is the 2-1 buydown, which involves a 2% reduction in the interest rate for the first year, followed by a 1% reduction for the second year, after which the rate returns to the original market rate.
The best-case scenario as a buyer is to negotiate with the seller paying for your rate buydown, as you’re then able to enjoy the lower rate without a cost to you. But, even if you have to pay for part of the buydown, or for it in its entirety, it may still be the best option to help you deal with today’s higher rates. Your real estate agent and mortgage advisor will be the best points of contact to help you determine if it’s the right option for you.
With all of these strategies, plus more out there, finding the best strategy for you to deal with high mortgage interest rates will depend on your individual circumstances and financial goals.
It’s important to talk to an experienced loan officer who can review your personal financial situation and help you develop the best mortgage loan options to achieve your goals. Our team is available to provide you with a free consultation today!
The included content is intended for informational purposes only and should not be relied upon as professional advice. Additional terms and conditions apply. Not all applicants will qualify. Consult with a finance professional for tax advice or a mortgage professional to address your mortgage questions or concerns. This is an advertisement. Prepared 10/26/2023.