Wednesday, December 6, 2023 / by Barb Fessenbecker
Avoid Getting Stuck with a High Interest Rate
Avoid Getting Stuck with a High Interest Rate
So, you’ve found your dream home, but the thought of a high mortgage rate is dampening your plans for homeownership. You aren’t wrong in thinking this, high mortgage rates can cost you thousands of dollars during the life of your loan. Don’t worry though—there are numerous ways to save money on your mortgage loan. In this article we are going to dive into four ways to avoid high interest rates:
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Making A Larger Down Payment
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Go With An Adjustable Rate Loan
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Purchase Mortgage Points
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Refinance
Make A Larger Down Payment
We know that it will take time to save extra money, but picture this: a larger down payment now means smaller monthly payments in the future. With a smaller monthly payment, you will have more breathing room in your budget that could allow for other surprises that life may throw at you down the road.
Saving the extra money may be easier than you think. Tax refunds, work bonuses, or perhaps those coupon-clipping skills you've perfected for grocery savings. A high-yield savings account from your friendly neighborhood bank could also sweeten the deal. Just a little savings here and there can add up fast!
Go With An Adjustable Rate Loan
An adjustable rate mortgage (ARM), also known as a variable rate mortgage, is a home loan with an interest rate that adjusts over time based on the market. This is a great way to start out with an interest rate that is typically lower than a fixed rate. However, there is risk with this type of loan. After a certain period of time, your interest rate will start to fluctuate, which may make your monthly payment harder to manage and cost you more in the long run. If you would like more information on an ARM loan, we would be happy to connect you with one of our preferred loan officers. Just give us a call at 262-629-4747.
Purchase Mortgage Points
Mortgage points could be your ticket to a lower interest rate. This is the process of buying down your mortgage rate with mortgage points (also called discount points). Sure, it costs a bit more upfront, but consider it an investment in your financial future. For every point you buy (at 1% of the loan amount), you're trimming down your interest rate by 0.25%. It doesn’t sound like a lot, but this will equate to some massive long-term savings in the future.
Refinance
The most common way to rid yourself of a high interest rate is to refinance. Think of it as hitting the reset button on your current mortgage and replacing it with a new loan for the remaining balance that has a lower interest rate and better terms.
Keep an eye on the market and keep in touch with your lender. Your lender will have information on the market trends and can help you decide when the time is right for you to refinance. They will calculate what your new monthly payments will be and show you how much money you’ll be saving! If you are not currently working with a lender, we would be happy to connect you with one of our trusted loan officers—just give us a call at 262-629-4747.
Keep in mind you will need to have a good credit score to secure the best possible rate.
Summary
In the grand scheme of things, you're not stuck. You've got options! Whether it's saving for a larger down payment, splurging a little now on mortgage points, or embarking on a refinancing adventure, there's a path to lower interest rates. Consult with your local lender – they're your mortgage whisperer, guiding you toward the best choice for your financial future. Or give us a call at 262-629-4747 and we would be more than happy to steer you in the right direction!