Mortgage rates have risen about .5% in 6 months, so what does that mean if you're trying to buy a home? First of all - don't worry! If you are trying to buy a home, the mortgage rate is important but shouldn't be your main focus. Don't let mortgage rates scare you into making a hasty decision about a home.
Mortgage rates don't have a huge impact on the monthly payment, but the cost can add up over time. For example, on a 30-year loan for $200,000, the monthly payment would be about $60 less at 4% vs. 4.5% interest. However, over 30 years, that adds up to just over $21,000!
When mortgage rates are rising but you are ready to buy a house, here are some things you can do to secure a good rate:
1. Lock your mortgage interest rate.
Your lender commits to an agreed upon combination of interest rates and points with you in a mortgage rate lock. If you are able to close the loan by the predetermined date, the rate can't rise. Occasionally, a lender will offer a one time float down option that allows you to get a lower rate if the rates are going down.
2. Purchase points to reduce the interest rate.
If you have additional cash on hand, you can purchase discount points. This is essentially pre-paying some of the interest in order to secure a lower mortgage rate. One point is equivalent to 1% of the loan amount. As a general rule of thumb, one point often gives a rate cut of 1/4 of a percentage point. However, this varies as mortgage rates fluctuate.
3. Look at homes in a different price range.
Before you begin your home search, it is wise to determine a range of interest rates that will allow you to afford the type of home you want. If rates are continuing to rise, you may need to adjust your price rage downward to stay within your budget. There are many loan affordability calculators available online that can help you determine a good range!