By Mike Miles
Most everyone anticipated mortgage rates would be increasing this year. Recently, we saw a jump by about a quarter percent to put the 30-year mortgage rate around 5.125 percent. The increase in rates isn’t necessarily a surprise but it can catch active homebuyers off guard a bit. A higher interest rate can mean your monthly mortgage payment will be higher.
Below is a short checklist of things to consider helping offset any impact from rising rates.
- Put more money down: You can use cash in one of two ways, or even both, to reduce your monthly payments. You can put more down at closing, which will reduce the amount you need to borrow. Cash can also be used to pay discount points at the closing. Discount points buy down your interest rate for the life of the loan. The benefit of doing this depends on how long you intend to stay in the home. The longer the expected term, the more discount points might make sense.
- Know your credit: Borrowers with a credit score above 760 get the lowest interest rates on a conventional loan. The rate you get can rise slightly with each 20-point drop in your score. I suggest knowing your score and then work to improve it if needed.
- Ask for some assistance: You can ask relatives to contribute to your down payment or to help pay for discount points. You can also ask sellers for help covering the closing costs, so you can use your cash to buy down your rate.
- Don’t be afraid of an adjustable rate mortgage (ARM): If your time in the house that you want to buy or refinance is planned to be relatively short, you shouldn’t be afraid to explore the benefits and risks of an ARM. These are loans with a fixed rate for five, seven or 10 years and are lower than a traditional fixed-rate option.
- Plan: Rising rates may encourage buyers to act sooner than originally planned. Speak with a qualified loan officer to get pre-approved and even fully underwritten. Fountain Mortgage offers the Fountain FastTrack approval just for this purpose.
Every .125 percent increase in rate is going to be the equivalent to seven dollars per month per $100,000 financed. The increase isn’t tremendous but it’s worth noting. The bullet points above are some basic ways borrowers can help reduce any negative impact felt by an increase in rates. Historically speaking, rates are still pretty close to the record low, but I understand some of the sticker shock associated with breaking the 5 percent rate barrier.
If you’d like to discuss your particular options, give me or my team a call.
This weekly Sponsored Column is written by Mike Miles of Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.
Mike Miles NMLS ID: 265927; Fountain Mortgage NMLS: 1138268