Homebuyers Are Still Looking At High Mortgage Rates; Here Are Ways to Lower It
Homebuyers have to wait a few more months before they see the mortgage rates come down, as per the latest inflation report from the Bureau of Labor Statistics, via CBS. Even though the inflation in January 2024 was 3.1% lower compared to December 2023, it was higher than what was expected. Inflation was still a full percentage point above the Federal Reserve's target 2% goal. This is why the interest rates are likely to stay high and a cut in that rate will not come in the next couple of months. The Feds are expected to hold the rates steady before cutting them this year.
Current mortgage rates are at an all-time high and according to reports, it's the highest since 2000. While the news might be distressing for homebuyers, there are ways in which you can reduce your mortgage rate by half a percentage point. Homebuyers can purchase mortgage points to reduce their rate. This means you can now pay a fee to the lender, either during the mortgage closing process or by rolling it into the total mortgage loan. This one-time fee can reduce the initial rate that was offered to you. For example, if you purchase 0.50 points, then your mortgage percentage will come from 7% to 6.50%. A full point is typically worth 1% of your total loan amount so, that gives you an idea of how much you need to pay to purchase points.
While this sounds like an option for many homebuyers, there are people for whom paying that extra amount in an upfront manner can be difficult. Also, it's important to note that the mortgage will be lowered eventually by waiting out the market or by simply refinancing in the future. Homebuyers can also look at adjustable-rate mortgages, which generally start with a lower rate and increase gradually. This will help you to save on the mortgage without having to pay the money right away and when the rates climb, you can always refinance.
Other than this, boosting your credit score can also help you lower your mortgage rates. To help your credit score, you need to start paying down the debts or ideally pay them off entirely. Credit score also remains high if you only apply for credit when you have everything paid off.
A shorter-term mortgage rate can also help you lower the mortgage rates. Mortgages with 20- or 15-year fixed terms as opposed to a typical 30-year term will lower your interest rates. However, it's important to note that as the term is shorter, the monthly payments are generally higher than usual.
Buyers can also look at lowering the interest rate for the first few years of the loan term with a buydown. Lenders and sellers sometimes offer an interest rate buydown to boost sales. It's rare to find this among mortgage lenders and it's important to note that even with this option, the monthly payments tend to be higher. While that might be a bit difficult for some buyers, those who can afford the higher monthly payments should go for it as it has major long-term benefits. If you are considering a buydown, we would urge you to compare your mortgage both with and without the buydown to see what works best for you.