For the past few years, the US economy has been experiencing historically low-interest rates. This has been great news for homebuyers, who have been able to secure mortgages at incredibly low rates. However, as the economy continues to recover and grow, interest rates are now on the rise, which is having a significant impact on homebuyers. In this post, we will explore how higher interest rates are affecting homebuyers and what steps you can take to mitigate their impact. Keep reading below to learn about what you can do in this historically high interest-rate environment.
First and foremost, higher interest rates mean that homebuyers will have to pay more for their mortgages.
For example, a 30-year fixed-rate mortgage of $300,000 at 3% would have a monthly payment of $1,264.81.
However, if the interest rate were to increase to 4%, the monthly payment would increase to $1,432.25. This may not seem like a significant increase, but over the life of the loan, the borrower would end up paying an additional $56,162 in interest, which makes a big difference in the cost of money and lowers your purchasing power.
Higher interest rates also mean that homebuyers may have to settle for smaller homes or less desirable neighborhoods. With higher interest rates, monthly mortgage payments become more expensive, which can limit the amount of money a homebuyer can spend on a home. This can be especially challenging for first-time homebuyers who are already struggling to save for a down payment.
So what can homebuyers do to mitigate the impact of higher interest rates?
Here are a few suggestions:
Shop around for the best rates your credit profile qualifies you for.
Just because interest rates are on the rise doesn't mean that you can't still find a good deal. Take the time to shop around and compare rates from different lenders. This can help you find a mortgage with a lower interest rate and save you thousands of dollars over the life of the loan.
Consider a shorter loan term to save on interest.
While a 30-year fixed-rate mortgage may seem like the best option, a shorter loan term can actually save you money in the long run. A 15-year mortgage, for example, may have a higher monthly payment, but it will also have a lower interest rate, which can save you tens of thousands of dollars over the life of the loan.
Increase your down payment if possible.
A larger down payment can help reduce the amount you need to borrow and lower your monthly mortgage payment. It can also help you qualify for a lower interest rate. While it may be challenging to save for a larger down payment, it can pay off in the long run by reducing your overall interest costs.
Improve your credit score.
Your credit score plays a significant role in determining your interest rate. A higher credit score can help you qualify for a lower interest rate, which can save you money over the life of the loan. Take steps to improve your credit score, such as paying off debt, making payments on time, and disputing any errors on your credit report. You can obtain a free credit report annually by clicking here, and learn more about credit here.
Be prepared to negotiate.
Just because a lender offers you a certain interest rate doesn't mean that you have to accept it. Be prepared to negotiate with lenders to try and secure a lower rate. You can also use pre-approval letters from multiple lenders to try and negotiate a better rate.
Higher interest rates are now affecting homebuyers, but there are steps you can take to mitigate their impact. By shopping around for the best rates, considering a shorter loan term, increasing your down payment, improving your credit score, and being prepared to negotiate, you can save thousands of dollars over the life of your mortgage. If you're planning on buying a home in the near future, it's essential to take these steps to ensure that you get the best deal possible. For more tips and information, click here.