Purchasing a home in the current market can present huge challenges. Home prices continue to remain high, and interest rates have risen significantly compared to previous years. Even Freddie Mac claims the average rate on 30-year loans is slowly creeping to 7%.
As for the future outlook of rates, it’s very uncertain. However, there are strategies and approaches to navigate these high rates if they continue on!
What to do if mortgage rates stay high
A viable approach is to consider buying a house at the current interest rate and then exploring the option of refinancing the loan when interest rates eventually decrease.
Robert Esposito, director of sales at RelatedISG Realty, suggests that mortgage refinancing is especially beneficial for individuals seeking homes with average prices, as these properties tend to appreciate over time.
He explains that people interested in those homes are likely to face fierce competition. For instance, a property valued at $500,000 today may appreciate to $600,000 in a year, and by not taking advantage of refinancing opportunities, you might miss out on potential savings.
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A substantial down payment can be an advantage in two significant ways. First, it may enable you to secure a lower interest rate on your mortgage, as emphasized by Sam Sharp, executive vice president of national sales at Guaranteed Rate.
Additionally, a chunk of a down payment helps decrease your overall loan balance, potentially allowing you to avoid the burden of private mortgage insurance (PMI), resulting in reduced monthly payments.
According Esposito, a significant down payment not only lowers the total loan amount and interest rate but also enhances your eligibility for better loan terms and, in some cases, eliminates the need for private mortgage insurance altogether.
Considering less-common mortgage products is a great alternative to explore. For instance, adjustable-rate mortgages (ARMs) offer initial lower rates compared to fixed-rate mortgages for the first few years of the loan. These can be beneficial if you plan to live in the home for only a short period, before the possibility of your rate increasing.
Lindsay Barton Barrett, a licensed associate real estate broker at Douglas Elliman, highlights that many individuals tend to overestimate the time they will spend in a property, resulting in higher interest rates than necessary. By opting for an ARM, substantial savings can be achieved, even if you end up staying beyond the adjustment date. The benefit lies in paying a higher mortgage rate for just one year in five years, as opposed to paying a higher rate for the entire six years.
Tapping into your current home’s equity, buying your down rate, and waiting for rates to drop are other ideas to consider. But remember — navigating today’s high mortgage interest rates doesn’t pose a one-size-fits-all solution. The best approach for you will depend on your specific goals, financial budget, and personal circumstances.
To make the right decision, it’s essential to consult with a mortgage professional who can provide personalized advice and guidance tailored to your needs. They’ll help you determine the most suitable course of action.