The Longer You Wait, the More Expensive Homes Will Become
Are you thinking about buying a home but feeling uncertain about rising mortgage rates? You’re not alone. Many potential buyers are asking the same question:
“How can I deal with higher interest rates when purchasing a home?”
Recently, the Federal Reserve raised rates by 75 basis points—the largest increase since 1994. Mortgage rates have already reacted and are expected to rise even more throughout the year. While rates are still historically low, there’s no denying that it’s becoming more challenging to purchase a home.
But here’s the good news: there are smart strategies to help you prepare and save in this changing market. Let’s look at three effective ways to make homeownership more affordable, even as rates climb.
1. Improve Your Credit Score
Even if you think your credit score is solid, there’s almost always room for improvement.
Start by paying down your existing debt—this reduces your debt-to-income ratio, which lenders use to determine your creditworthiness.
You can also save for a larger down payment, which may help you qualify for a better mortgage rate. Small improvements can make a big difference. Even a slight drop in your interest rate can save you thousands of dollars over the life of your loan.
2. Lock in Your Mortgage Rate at the Right Time
If your lender offers a favorable rate, consider locking it in. Since rates are expected to rise to combat inflation, securing your rate can protect you from future increases.
Keep in mind, though, that a rate lock typically lasts only 30 to 60 days, so it’s best to lock in your rate when you’re close to closing on your home.
3. Pay Mortgage Points at Closing
Another option is to buy down your interest rate by paying mortgage points (also known as discount points) at closing.
Each point generally costs 1% of your total loan amount. For example, if you’re borrowing $200,000, one point would cost $2,000. This upfront payment can lower your monthly mortgage payments—and in some cases, the cost may be tax-deductible.
If you can deduct mortgage interest on your taxes, chances are you can also deduct the cost of your mortgage points.
Don’t Wait Too Long to Buy
While it’s true that mortgage rates have increased, it’s still a great time to buy a home. When the Federal Reserve made a similar rate hike in 1994, mortgage rates were around 8%. Today’s rates are still much lower by comparison.
However, with more rate hikes expected and home prices continuing to rise, waiting could cost you more in the long run.
The reality is simple: the longer you wait, the more expensive homes will become.
