Since the election, mortgage rates have been on fire. And by on fire, I mean rapidly escalating from the mid-3% range to above 4% with no end in sight.
That might have pushed you into panic-mode if you’re considering a refinance, or in the process of purchasing a home.
First, the good news. While they aren’t as cheap as they were pre-election, mortgage rates continue to be historically dirt cheap.
Yes, a 4% 30-year fixed mortgage isn’t as good as a 3.5% 30-year fixed mortgage, but both are spectacular. There’s just no doubting that.
It’s just that we’ve been spoiled for so long that any time rates rise it seems like the sky is falling.
In other words, even if you buy or refinance today with a 4% mortgage rate, you’ll still be in amazing shape relative to any other time in history other than the past year or so.
And even then, you won’t be far off. But what if you just insist on getting a lower rate? Well, Ive compiled a list of ways to keep your rate down despite the recent mortgage rate fiasco.
Buy It Down
- Pay discount points at closing
- Sure it’ll cost you a little more upfront
- But doing so will lower your mortgage rate and monthly payment
- For the life of the loan
Yes, your closing costs will be higher, but your rate will be lower for the duration of your mortgage.
You might be able to buy the rate down to the high 3% range, though be warned that chasing a certain psychological threshold might not make good financial sense.
For example, it may cost an arm and a leg to get a rate below 4%, but very little to get the rate to 4% or 4.125%. And the difference in monthly payment could be negligible.
Lower Your LTV
- Come in with a larger down payment
- Or pay down your mortgage a bit before refinancing
- And you might be able to avoid some pricing adjustments
- While nabbing a lower interest rate
Another way you can bring that mortgage rate down is by lowering your loan-to-value ratio. This means either putting more money down on a home purchase or borrowing less for a refinance.
So instead of going with 10% down, maybe see what rates are like with 20% down, assuming you can handle the cash outlay.
Or when refinancing, maybe take less cash out to keep the interest rate at bay.
A lower LTV means fewer pricing adjustments, which means you can qualify for the lowest rates available with a given lender.
Improve Your Credit
- Work on your credit scores
- Months before applying for a home loan
- Even simple things like paying down credit cards can help
- To ensure you qualify for the lowest rates possible
While you’re at it, you might want to see if you can spruce up your credit. A low credit score will increase your mortgage rate, sometimes significantly.
If you’re able to improve your scores before applying for a mortgage, you should qualify for a lower interest rate.
Simple things you can do include paying down credit card balances and avoiding new lines of credit. Also avoiding new charges on your credit cards will help lower your credit utilization.
It might take some time for these moves to reflect in your scores, so take action early. But if you need the changes to apply immediately, ask your loan officer about a rapid rescore.
Go with an ARM
- If fixed rates are too high
- Look beyond the 30-year fixed-rate mortgage
- There are hybrid ARMs
- That offer a fixed rate for 5-7 years or longer, a good alternative if you don’t plan on staying long
There’s also the ARM option. If you feel fixed mortgage rates have risen too much, you can expand your horizons and look at adjustable-rate mortgages.
There are plenty of hybrid-ARM options that offer a fixed-rate period for five, seven, or even the first 10 years of the mortgage.
Most people move or refinance before that time anyway, so it’s worth at least considering an ARM if you can handle the potentially higher rate once it resets.
You will enjoy lower monthly payments during the initial fixed period and pay down the mortgage faster thanks to a lower rate.
When the rate is close to resetting, you can refinance again, sell, pay it off, etc.
Yes, there’s risk here, but it’s one option to at least consider.
- Here’s a no-brainer
- Just shop around at more than one bank or lender
- Many borrowers obtain just one quote, which sounds cliché but is true
- Put in a little more time and maybe you’ll save a lot more money
With mortgage rates a lot higher than they were a couple weeks ago, it means you need to be a lot more picky.
Just about every lender offered a rock bottom mortgage rate in early November, so you couldn’t really go wrong. But with rates on the move, you have to pay a lot more attention to what’s going on and shop accordingly.
You actually have to shop now because not all lenders are reacting to the market the same way.
Some may have increased rates more than necessary out of an abundance of caution, while others may still be offering aggressive pricing to bring in customers and stay competitive.
It could pay to get a few quotes just to see what’s out there.
Just Wait It Out
- If mortgage rates aren’t favorable at the moment
- Wait for the trend to become your friend
- Rates constantly change direction
- So timing it could be enough to get the rate you want
Lastly, you could just pump the brakes and wait for the dust to settle. As I noted in my post about President-elect Trump and mortgage rates, there’s still plenty of uncertainty.
And uncertain times usually call for volatility, which is often accompanied by lower interest rates.
This isn’t a sure thing, but it’s also not a sure thing that mortgage rates will continue to increase, or even stay put at their now elevated levels.
So patience could pay off here. Of course, things could get even worse so remember to look at rates through a historical lens. They’re still absurdly low!