STRATEGIES TO BUY WITH CURRENT INTEREST RATES
As rates have been inching higher, buyers and lenders have been adapting their strategies to help make mortgage payments more manageable.
Here are a few strategies for getting the best rate and a payment that works for your budget:
• Buy now at the current rate (with less buyer competition, and lower prices), and plan to refinance when rates decrease.
An Adjustable Rate Mortgage (ARM) can be a great option if you’re considering refinancing in a few years (or few months) when / if rates drop. You can lock into a fixed rate for 3, 5, or 7 years, and refinance before your fixed rate “adjusts.”
• Buy down your interest rate.
There are a few ways you can do this. You can purchase “points” (these are typically 1% of your loan amount), which will decrease your interest rate for the life of the loan. Another option to consider is a 2-1 Buydown. By paying a few points upfront, your interest rate will drop by 2% in the first year, 1% in the second year, and return to the full (current) interest rate by the third year. An added bonus is that points are tax deductible!
• Get rid of PMI to lower your payment.
You don’t have to put down 20% to get rid of your monthly mortgage insurance (PMI) on a conventional loan. One option is to pay a premium upfront, also known as points, to remove the PMI entirely (upfront PMI). Another option is lender-paid mortgage insurance (LPMI), which builds the cost of covering your mortgage insurance into the rate, by slightly increasing your interest rate.
The good news is that last month we saw a slight drop in rates, however, it’s impossible to know with certainty where home prices or mortgage rates will be in the coming months. Unfortunately, there is no way to time the market, but investing in a home to call yours is always a good option. Friendly reminder: when the time is right for you to purchase a home, purchase a home. Don’t let scary headlines or peer pressure influence that. Instead, buy a home when you can afford the payments, regardless of interest rates and home prices.
Want to run the numbers to see what you can afford with our current interest rates, or have other questions about buying? Send me a message, and let’s discuss your dream of homeownership.