How to Beat Rising Interest Rates as a Home Buyer

When you’re ready to buy a home, the terms of your home loan will determine how much house you can afford. One factor to address is the rate of interest your lender will charge.

Fortunately, there are several steps you can take to lower your mortgage rate. First, take a look at the following methods for combating high-interest rates.

Buy Discount Points

Consider paying a little more up front when looking at how to beat rising interest rates as a home buyer. For example, you can buy discount points at 1% of your home’s purchase price.

Points on a $200,000 home will cost you $2,000 each. So you’ll lower your interest rate by around 0.25% for every point.

Keep in mind that each lender is different. Therefore, depending on your chosen mortgage company, your discount may be more or less than the 0.25% average discount.

Reduce Your Loan Term

Changing your loan length is another way to beat rising interest rates as a home buyer.

Remember that a 15- or 20-year loan will result in higher monthly payments. However, more of that amount will go toward the principal since shorter loans typically come with lower interest rates. Lower rates will help you build equity faster than you would with a 30-year loan.

Increase the Size of Your Down Payment

Another way to beat rising interest rates as a home buyer is to increase the size of your down payment. Putting 20% or more down on your home purchase will show lenders that you are a better risk.

In exchange for your good faith effort, lenders may lower your interest rate and forgo the need to assess the property. You might also be able to buy the home without obtaining private mortgage insurance (PMI).

Start Small and Upgrade Later

Many younger adults find that the answer to beating rising interest rates as a home buyer is to choose a starter home. Alternatively, buy a fixer-upper that costs less in a competitive market. Since your home purchase price is lower, you’ll pay it off faster and pay less in interest.

Later, you can keep the house and use it as a rental property or sell it outright. Either option will give you the resources to upgrade to a bigger home in a few years.

Buy a Multi-Family Home

Rather than reducing your mortgage interest rate, consider increasing your income to help you afford the interest more comfortably. For example, a home that has two to three units will provide you with living space for yourself while giving you a rental income from the other units.

As you build more equity in your home, you can upgrade to a single-family home and keep that first property as an investment. Renting all the units will give you a steady stream of passive income.

Put Your Home Search in the Hands of the Pros

Contact The Selby Team to get started on finding your new home.