Home Interest Rate Hacks
With interest rates continuing to rise, buyers are becoming more price-conscious than ever. If you were ready to buy before rates increased, don’t let the current rates deter you from purchasing a home this year.
• 2-1 Buydown
A 2-1 buydown is a type of financing that lowers the interest rate on a mortgage for the first two years before it rises to the regular, permanent rate. The rate is typically two percentage points lower during the first year and one percentage point lower in the second year. Either a buyer or a home seller can pay for a buydown (in the form of a seller assist).
This Is a great option if you are planning on getting a raise in the next few years, or paying off debt.
• Adjustable Rate Mortgage (ARM)
An adjustable-rate mortgage (ARM) is a home loan with a variable interest rate after a certain set period. This means that the initial interest rate is fixed for a period of time (this can be anywhere from 5-10 years), and after that, it can adjust periodically, up to a certain “cap”.
For example, a 5/1 ARM would stay fixed at a lower rate for the first 5 years, and then after the 5 years, can adjust up (or down) no more than 1-2% a year, with a maximum amount it can increase over the next 25 years of the loan. The most common types of ARMS are 3, 5, and 7-year ARMS.
This is a great option if you are planning on moving In 5-7 years, or refinancing when / if rates drop.
• Improve / Maintain Good Credit
A good credit score helps you qualify for a mortgage with the best loan terms — this includes the interest rate, PMI (mortgage Insurance), and upfront fees. Make sure you maintain good credit by paying your bills on time and utilizing under 30% of your total available credit.
• Shop Around for Lenders / The Best Rate
Different lenders will offer different terms and charge different fees for a home loan. It’s important to get quotes from more than one lender, compare your options, and ask questions. It doesn’t hurt to play them against each other either to get the best terms (not just the interest rate). Most lenders will get quite competitive to gain your business.
If you decide to shop around, make sure you do so within the 45-day window so that there will be minimal effect on your credit, and don’t apply with too many. Ask friends or your agent for recommendations.