Before I dive into some of less obvious hacks that can lower interest rates, there are the obvious ones. Like:
- Make a larger down-payment.
- Reduce the number of years on the loan.
- Pay CASH for the home or property you are interested in.
Okay, now that I’ve gotten those out of the way – like everyone home buyer between the ages of 21 to 50 years old can afford those options, right?
After all, just a year or so ago you could get a 3% interest rate and on a $300,000 home on a 30-year loan and the monthly payment would come in something close to $1265 +/-. Fast forward to now, and a good rate is 5.5% and borrowing $300,000 at 6% over a 30-year term will cost you nearly $1800 a month. That is a hard hit to most any budget and that is obviously driving home sales down substantially year over year.
Of course, we live in a resort, real estate market of sorts and prices are holding pretty steady and it is still a sellers market because inventory is low. However, that 5-6% interest rate can be a deal-killer.
Don’t Lose Hope, Because There Are Mortgage Rate Work-arounds
You have to be willing to talk with numerous lenders and be open and communicative with the seller, but there are ways to get interest rates down and make buying a home more affordable even in this challenging market. If you find yourself longing for the days (not too long ago) of historically low interest rates, you are not alone.
Over the last year, the average rate on 30-year mortgages has more than doubled- going from around 3% to 6.6%. That has driven average monthly payments up by 50% in as little time.
However, there IS good news. Mortgage rates and payments are not set in concrete. There are several strategies than can reduce your rate and make purchasing a home more affordable – IF you are willing to put in some effort. Unlike the obvious choices mentioned earlier of simply coming up with more cash (when that too may be hard to come by), you can try some of these lesser known mortgage rate reduction ideas.
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You can actually ask the seller for assistance or help.
That will surprise a lot of people because it sounds counterintuitive but sellers WILL pitch in to reduce a buyer’s interest rate. That has happened many times over the years during more challenging, high-rate markets like we are seeing right now. Obviously, you have to ask, but the way it works is pretty straightforward. The seller agrees to what is called a “concession”, which essentially means that they will contribute a portion of their sale revenues to the transaction. Those funds are then paid to the LENDER in exchange for a lower interest rate. You might be thinking “no way”, but YES way…sellers are often motivated to help!
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Be willing to consider more than one lender. In fact, look at several lenders and negotiate with them.
Mortgage firms and lenders have their own margins and ideas as to the risks they are willing to take. Some firms have more overhead and staffing costs and speaking with several lenders is critical to getting the lowest rate. Also, many realtors have working and trusted relationships with lenders and the lenders come to know that they can trust referrals.
It pays (literally) to shop around. Rates can vary by several percentage points from one lender to another, and one or two percentage points can GREATLY effect monthly payments.
Also, if you have a long term relationship with your personal bank and have significant assets under management, then your bank is more apt to work with you at the lowest rate they can offer.
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Buy Mortgage or Discount Points
Believe it or not you can purchase a lower interest rate for yourself. This is known as “buying points”. It is different from an increased down payment. Ask your mortgage lender about this because purchasing a median-priced home at around $460K at a 7% rate with a 6% down payment (stereotypical for first time buyers) would make for monthly payments of around $2900. If you can buy down your rate to something like 6%, you’d knock $300 or more off of your monthly payments.
There ARE some considerations, so be sure to research (Google) or ask a trusted lender.
You can also consider other options like an adjustable-rate mortgage or a shorter term mortgage. Many lenders have creative strategies that they can consult with you on.
If you’d like, ask Madison about consulting with a trusted lender. She has some connections that might offer strategies to help you get into your new home easier and more cost effective. Call Madison at 828.616.6044 or email her at madison@ncmountainproperties.com
