As mortgage interest rates continue to climb, homebuyers may wonder whether it would be wiser to wait before making their purchase decision. A lower interest rate could save significant sums of money over the term of their loan.
Purchase of a home at higher mortgage rates can still be beneficial, particularly for those with strong credit, substantial savings and an adequate down payment. Below are four key reasons to go forward regardless of any rises in mortgage rates.
2. Down Payment
Amount you put down when buying a home is an integral factor of mortgage rates. Lenders will perceive you as less risky if you put down more upfront and may offer you lower interest rates; however, other considerations must also be taken into account, including your credit score and loan type (jumbo vs conforming). If your credit score is high but your down payment falls short of qualifying for optimal rates, consider saving for longer before buying or selecting a lower priced property to put more down payment toward.
3. Credit Score
Credit scores indicate the risk posed by potential homebuyers, and lenders use that data to set mortgage rates. A 100-point drop could cost $25,300 over 30 years. Mortgage rates are highly customized based on an individual’s unique financial situation; thus it would be wiser to focus on improving your credit score rather than hunting average mortgage rates. Unfortunately, a new rule coming into force on May 1 could change mortgage fees accordingly, so those with lower scores could pay more compared to those with higher ones – making it even harder for those with good credit to buy property.
4. Mortgage Points
Shopping for a mortgage can be confusing, with a seemingly never-ending list of fees involved. Perhaps none draws more scrutiny than mortgage points – an effective way for borrowers to reduce the interest rate on their loan by purchasing points at approximately 1% of total loan amount and decreasing it by about 0.25%.
Before purchasing mortgage points, consider whether their cost will ever be offset by reduced payments in the future. Your answer depends on how long you plan to reside in your home and if you’re willing to tie up capital up front in exchange for lower mortgage rates in the long run.
Before making a decision, it’s advisable to run the numbers and compare mortgage offers. Furthermore, always work towards improving your credit and saving up for a larger down payment; this will enable you to secure better mortgage rates and save more over time.