How to Combat Higher Rates
There was a time, not too long ago, that the Fed was going to lower interest rates as a way to stimulate the economy. But it may be the notion that thought has been put aside. Why? Inflation. The Fed adjusts rates up or down, or leaves them the same, in an effort to affect the cost of money. By raising rates, it makes borrowing more expensive so consumers will slow down their spending. This can help put a lid on rising costs. By lowering rates, it can stimulate borrowing which in turn helps fuel a sluggish economy. Both consumers and businesses are affected in pretty much the same way.
So, as a consumer and you’re thinking of buying a home soon, what can you do to combat these higher rates?
Rates are at levels we haven’t seen in quite some time and it doesn’t look like they’ll abate any time soon. But there are some things you can do that might help.
First, try getting your lender to extend the term of your loan. While most loan programs are offered in 30 and 15-year terms, there are other terms available. You just have to ask. For instance, there are also 10, 20, and 25-year terms. A shorter term means you pay less in long-term interest but it does indeed raise the monthly payment when doing so. On the other hand, your lender might offer a 40-year term. Yes, you’ll pay more in long-term interest but it does lower your monthly payment. It’s kind of a tradeoff but it’s still a way to lower a payment. This can help qualify you for the amount you really want.
You can also pay a discount point or two to lower your rate. A discount point is expressed as a percentage of the loan amount. If you’re borrowing $300,000 and you pay one point, or $3,000, your rate might be lowered by one-quarter of one percent. You’ll want to work with your loan officer to decide if paying any points is right for you, but if you need to tweak down the rate a bit, a point just might do the trick.
Finally, you can simply put more money down which means you’re borrowing less. That is if you have the means to do so. If you don’t, then perhaps it’s time to wait and save just a little bit more to reach your borrowing goals.
Written by David Reed for www.RealtyTimes.com Copyright © 2024 Realty Times All Rights Reserved. Reed is from Austin, Texas and is the author of The Real Estate Investor’s Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. A Senior Loan Officer and Mortgage Executive for more than 20 years, he has also appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show.
