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You decided to buy a Southern California home. You saved up enough money for your down payment and closing costs. After you asked the right questions, you find a lender you trust. Now, it’s time to talk money. As of the writing of this post, interest rates for a 30-year fixed-rate loan sit at around 7.18%. Now, that may cause concern for some home buyers. But there are a few ways in which you could possibly lower your mortgage rate and make homeownership a little more affordable.
How to Lower Your Mortgage Rate
Go Adjustable
First, instead of the fixed-rate mortgage that many home buyers chose when rates were lower, try an adjustable-rate mortgage. The rate starts off lower and stays that way for a set period of time (anywhere from the first three to the first ten years of the loan). However, after that set period, the rate then goes up. If you plan on staying in your home for only a few years before selling it, this might actually make more sense than a fixed-rate loan.
Shorten Your Term
Another way to lower your rate is by going with a shorter term. Right now, Freddie Mac shows interest rates for a 15-year fixed-rate mortgage are 6.51%. That’s 0.67% lower. However, with a short term comes higher payments. On the positive side, though, that also means building equity faster and paying off your loan in a much shorter amount of time. So, if you can afford to make higher payments each month, it could be well worth it.
Paying Points
Yet another way to lower your rate is by paying for discount points. Each point costs about 1% of your loan value. For example, if you borrow $400,000, a point costs $4,000. For that point, your interest rate decreases by 0.25%. However, the pricing varies from lender to lender. Also, you need to determine whether the time it takes to recoup your costs of paying for points is worth the expense. Your lender can help you with these calculations.
Increase Your Down Payment
Some mortgage programs only require 3.5% down. But if you pay even 5% of 10%, you look like a better credit risk to lenders. In turn, your rate goes down. If you can come up with 20% down, you get the best rates possible and you no longer pay PMI, which can save you a few hundred a month.
Shop Around
Finally, shop around. Rates, terms, and fees vary from lender to lender. So, it never hurts to check out a few different lenders before deciding on which one works best for you.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
