Here are three easy methods to deal with rising interest rates.

 

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“I want to purchase a home, but how can I deal with higher interest rates?” Many clients have reached out to ask me this question recently. In case you don’t know, the Federal Reserve recently raised rates by 75 basis points—the largest increase since 1994. Mortgage rates have already responded, and they’re likely to increase further throughout the year. Rates are still low historically, but there’s no denying that recent increases make it more difficult to purchase a home. If you’re looking to buy, what can you do? 

 

Fortunately, there are tons of creative ways to adjust your strategy and prepare for higher rates, and I want to share three of them with you today:

 

1. Improve your credit. You may think your credit score is already as good as it can be, but there is always room for improvement. Start by paying off your debt little by little. This will lower your debt-to-income ratio, which is what lenders use to determine your creditworthiness. You can also save up for a bigger down payment to improve your credit and lower your rate. Talk with your lender as soon as possible to get started.

 

 

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The longer you wait, the more expensive homes will become.
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2. Lock in your mortgage rate when it makes sense. If your lender is offering you a good rate, consider locking it in. Rates are expected to continue rising to combat inflation, but you won’t have to worry about that if your rate is locked in. Remember that you can only lock your rate for one to two months so you need to find a home in that period.

 

3. Pay mortgage points at closing. Also known as “discount points,” mortgage points are fees you can pay to lower your interest rate. One point typically costs 1% of your loan, so a point on a $700,000 mortgage would cost $7,000. This would save you hundreds of dollars per month in mortgage payments. Some people opt not to do this in the hope that rates will drop so they can refinance.

 

There are a lot of strategies to creatively deal with rising interest rates. If you have any questions about interest rates or purchasing a home, please call or email me. I am always willing to help!