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Mortgage interest rates are expected to rise throughout 2022. That’s terrible news for property purchasers, but it’s not the end of the road. There are several things you may take to combat increasing interest rates and secure a better home loan.
While the general interest rate market is rising, consumers may take many methods to reduce their specific mortgage rates. Among the finest tactics for beating increasing interest rates are:
Use Points To Reduce Your Interest Rate
By paying for discount points in advance, you can decrease your mortgage interest rate. Each discount point costs 1% of the amount of your loan. So, if you want to borrow $300,000, one discount point costs $3,000 and normally lowers your interest rate by 25 basis points (0.25%).
For example, if you spend $3,000 for one discount point and save $100 each month on your mortgage payment, your breakeven point would be about 30 months — or two and a half years. To recuperate your buydown cost, you would have to stay in the house for at least that long.
Think About An Adjustable-Rate Mortgage
When interest rates on fixed mortgages rise, some borrowers shift to adjustable-rate mortgages (ARMs). Many lenders provide ARM loans with early teaser rates that are fixed for a defined length of time – generally the first three, five, seven, or ten years of a 30-year loan. These teaser rates are often lower than the interest rate on a fixed-rate mortgage loan.
On the day this was published (May 2, 2022), the Freddie Mac average for a 30-year fixed-rate mortgage was 5.10%, while the rate on a 5/1 ARM was just 3.78% – nearly a full percentage point lower.
The disadvantage is that when your ARM’s initial fixed-rate period ends, your rate may vary based on a margin and index specified in your loan documentation. This might result in a higher interest rate and monthly payment down the road.
Make Use Of A Shorter-Term Loan
Many lenders provide mortgage loans with periods as short as 15 or 20 years. According to Ceizyk, a 15-year loan typically has an interest rate that is 0.5% to 0.75% cheaper than equivalent 30-year rates.
However, keep in mind that 15-year loan payments are much greater. This is due to the fact that you are repaying the same loan amount in half the time. So, before agreeing to this form of loan, run the figures carefully and make sure you can easily afford the installments.
Put Down A Greater Deposit
A greater down payment indicates that you are a less risky borrower, which may result in a cheaper interest rate. Furthermore, a bigger down payment results in a reduced monthly payment throughout the life of the loan.
Furthermore, by putting down at least 20%, you can avoid paying private mortgage insurance (PMI) on a traditional loan.
Choose A Less Expensive Home Or Rent Out A Portion Of Your Property
Starting small and getting your foot in the door with a lower-priced property is a good approach in today’s market.
Whether you buy a starter house or a fixer-upper, you can always roll over and enhance your investment into something more substantial. Alternatively, you may choose a larger property and rent out a portion of it to help pay your mortgage.
10 Properties provides expert advice from Financial Advisor in Melbourne and can get details about New homes for sale in Melbourne. For further queries, please reach out at [email protected] or call 1300-617-677