Mortgage rates are getting closer to 7% and hitting a ceiling that may be too high for many potential homebuyers. Last week, the 30-year fixed-rate mortgage came within a hair of that mark, according to data from mortgage buyer Freddie Mac.
Long-term mortgage rates move in concert with broader economic conditions, the Federal Reserve’s monetary policy (to some degree) and inflation. Cooling inflation data and positive Fed signals should help bring rates down.
1. Get a Mortgage Quote
Mortgage rates have risen to their highest levels in more than two decades, reflecting the Federal Reserve’s aggressive interest rate hikes intended to tame inflation that has been running high for some time now. As a result, home buyers are facing the most expensive housing market in a generation, and many have been priced out of the market altogether.
It’s important to shop around and compare offers from multiple lenders to find the best deal. Borrowers who get at least three quotes can save an average of $300 per year, according to the Consumer Financial Protection Bureau, and those who negotiate their rates may drive those savings even higher.
In addition to comparing interest rates, be sure to take into account other costs such as origination fees, mortgage insurance and loan application fees. To simplify the process, you can ask lenders for a “Loan Estimate,” which is a standard form that includes these and other charges. This will allow you to make apple-to-apple comparisons of competing offers.
Also keep in mind that credit scores play a big role in the type of mortgage you’ll be offered and the interest rate you’ll get. Most lenders review credit from each of the three major credit bureaus (Equifax, Experian and TransUnion) and use the middle score for their lending decisions. You should aim for a credit score of 780 or above to qualify for the best conventional mortgage rates this week.
Lastly, consider talking to your bank or a lender with which you have a relationship, as some offer preferred mortgage rates to existing customers. It is also worth exploring the option of using a mortgage broker, who can help you shop for offers from a wide range of mortgage lenders.
As you shop, remember that while low advertised interest rates can be tempting, the true cost of a mortgage is measured in terms of the annual percentage rate, or APR. If you plan to own your home for more than 10 years, it might make sense to pay upfront points in order to reduce the overall APR and save money over the life of your loan. However, if you are planning to move after a few years, paying points is likely a waste of money.
2. Refinance Your Mortgage
Mortgage refinancing is a process where your existing loan is paid off and replaced with a new one. It can have a number of benefits including lowering your monthly payments, nailing down a shorter loan term, taking cash out to finance home improvements, paying off debt and eliminating private mortgage insurance. Generally, the most important consideration when it comes to refinancing is “why?” Identifying your motivation will help you weigh the pros and cons.
When mortgage rates plunged during the coronavirus pandemic in 2020, many homeowners rushed to take advantage of the historically low interest rates. However, as rates have since risen, the pool of homeowners interested in refinancing has diminished. That doesn’t mean it’s too late to refinance, but it’s important to do the math first, Wood says.
For example, you should consider how long it will take for your mortgage rate to rise to a point where the cost of refinancing outweighs the savings. The typical refinance fee is about 2% to 5% of the loan amount, which can add up quickly. You can find out how much you might pay in refinance fees by using a lender’s mortgage calculator or an online mortgage calculator such as the ones at NerdWallet or Bankrate.
Also, keep in mind that you may be able to get a lower interest rate if your credit score has improved since you originally took out your mortgage. In that case, it might make sense to refinance even if you have only a few years left on your current loan.
Another possibility is to combine your primary mortgage with an equity loan, which can free up some of the home’s value to use for a big expense, such as a college education, an expensive wedding or major repairs. Using home equity to pay for expenses typically makes more financial sense than using credit card debt, which carries high interest charges, Wood says.
No matter what your motivation, it’s important to consult with a professional who can guide you through the mortgage refinance process and determine whether this is the right move for you. If it is, you’ll be able to lock in today’s low mortgage rates before they start climbing again.
3. Get a Cash-Out Refinance
A cash-out refinance lets you convert your home equity into actual money you can use. In this type of mortgage refinance, you replace your existing first mortgage with a new one for more than you owe on your property, and you withdraw the difference at closing in cash. You can then use this cash to meet your financial goals, which might include paying for home improvements or consolidating debt.
While you may think a cash-out refinance is an excellent way to get access to your home equity, it’s important to weigh the pros and cons carefully before committing to this type of loan. As a general rule, you can borrow up to 80% of your home’s current value using this method, but lenders might offer you less than that amount based on other factors, including how much the lender thinks your property is worth and how high your debt-to-income ratio is.
Another consideration with a cash-out refinance is that you will be repaying a new loan with different terms than your original mortgage, which could impact your monthly payments. It’s essential to look at the mortgage payment amortization schedule on your Closing Disclosure to see how long it will take you to pay off your new loan, as well as how it might affect your monthly budget.
As with a standard refinance, you will also have to pay closing costs to complete a cash-out refinance. These fees can add up to thousands of dollars, so it’s important to factor these expenses into your overall cost calculations.
Finally, you should be sure that you have a clear plan for how you will spend the money you receive from a cash-out refinance. If you are planning to use the money to make home improvements, for example, be sure to get estimates from contractors before you close on your loan and start spending. The same goes for any plans to use the money to consolidate debt — you’ll want to sit down with your credit card and bank statements and calculate exactly how much you need.
4. Buy a Home
Homeownership is a big part of the American Dream. It has many financial benefits, including property tax deductions and equity buildup. However, the decision to buy or rent a home is one that should be carefully considered. It depends on your current financial status and personal goals, as well as the real estate market.
As mortgage rates rise, more borrowers are questioning whether now is the right time to buy a home. But while the rising rates are a concern, it is important to remember that they are also tied to inflation. If inflation declines, mortgage rates may decline as well. However, it is essential to work with a lender on different scenarios and to use a mortgage calculator to see what your monthly payment would be if rates increase or decrease.
It is also important to consider other costs associated with homeownership, such as maintenance, insurance and taxes. These expenses can quickly add up, so it is important to plan ahead and budget accordingly. Finally, it is important to remember that homeownership is a long-term commitment—usually 15 to 30 years. If you are not prepared for that type of commitment, it is probably best to continue renting.
If you are ready to make the leap into homeownership, it is important to have a solid savings plan for the down payment and other upfront costs. It is also a good idea to consult with a mortgage broker to get a better understanding of the loan process and what to expect. Finally, it is a good idea to stay up-to-date on NYC real estate market trends by using tools like StreetEasy’s Data Dashboard.
Buying a home is a huge financial commitment. It is important to make sure that you are financially and emotionally ready for it before making the jump. Fortunately, there are many options available for first-time buyers, including low down payment loans and down payment assistance programs. By being prepared and staying informed, you can take advantage of today’s low mortgage rates and potentially purchase a home at a great price.
As an AI language model, I don’t have access to real-time financial data or market predictions, so I can’t confirm whether mortgage rates have reached new highs this week. However, if mortgage rates are trending higher, here are some things you can do:
- Act quickly: If you’re in the market for a mortgage, it’s important to act quickly before rates climb even higher. Be sure to shop around and compare rates from multiple lenders to ensure that you’re getting the best possible rate.
- Consider a shorter loan term: Shorter loan terms, such as 15-year mortgages, often come with lower interest rates. If you can afford higher monthly payments, a shorter loan term may be a good option to consider.
- Improve your credit score: A higher credit score can help you qualify for lower mortgage rates. Be sure to check your credit score and take steps to improve it if necessary.
- Lock in your rate: If you’re happy with the rate you’re offered, consider locking it in to protect yourself from any future rate increases. Keep in mind that rate locks typically come with expiration dates, so be sure to complete your mortgage application and close the loan before the lock expires.
Here are some FAQs related to rising mortgage rates:
- What causes mortgage rates to rise?
Mortgage rates can rise for a variety of reasons, including economic indicators, Federal Reserve policy, housing market conditions, and global events.
- How much will a rise in mortgage rates affect my monthly payments?
The impact of a rise in mortgage rates on your monthly payments will depend on a variety of factors, including the loan amount, interest rate, and loan term. Be sure to use a mortgage calculator to estimate your monthly payments based on different interest rates.
- Should I wait for mortgage rates to drop before buying a home?
This depends on your individual financial situation and personal goals. While waiting for rates to drop may allow you to secure a lower rate, it’s important to keep in mind that rates can be unpredictable and may rise further in the future.
- Can I refinance my mortgage if rates have increased since I purchased my home?
Yes, it’s possible to refinance your mortgage even if rates have increased since you purchased your home. However, keep in mind that refinancing comes with its own set of costs and fees, so be sure to weigh the pros and cons before making a decision.
In summary, if mortgage rates are rising, it’s important to act quickly, consider a shorter loan term, improve your credit score, and lock in your rate if you’re happy with it. Be sure to use a mortgage calculator to estimate your monthly payments based on different interest rates and consult with a lender to determine the best course of action for your specific financial situation.