40% of Home Buyers Say Today's Mortgage Rates Are Too High. Here's How to Score a Better Rate
- Today's home buyers are being spooked by rising mortgage rates.
- You may be able to save some money by increasing your credit score and taking out a mortgage with a shorter term.
- Shopping around for the best deal and building a sizable down payment can also help.
Believe it or not, it's possible to eke out some savings on a mortgage, even at today's rates.
Ever since the latter part of 2020, home buyers have been struggling to navigate the housing market. Back then, record-low mortgage rates caused a surge in buyer demand, and they also caused a major increase in home prices.
And since the second half of 2020, housing inventory has been sorely lacking. That, too, has contributed to sky-high home prices.
While it was by no means easy to purchase a home from mid-2020 through early 2022, the one thing buyers had going for them was access to competitive borrowing rates. But mortgage rates have been rising sharply since the start of the year, and at this point, they're the highest they've been in over a decade.
In fact, 40% of prospective buyers said high rates are one of the reasons they're hesitant to buy a home, according to Bank of America’s 2022 Homebuyer Insights Report. But if higher borrowing rates are stopping you from becoming a homeowner, the good news is that there are steps you can take to reap some savings on a mortgage. Here's how.
1. Boost your credit score
Mortgage lenders enjoy collecting interest -- it's how they make money -- but they also don't tend to enjoy undue risk. And if you boost your credit score, you'll be perceived as a less risky borrower, for which you'll generally be rewarded with a lower interest rate on your home loan.
Now, boosting your credit score isn't something you can generally do overnight. But paying all bills on time and chipping away at credit card balances can definitely help.
2. Opt for a 15-year mortgage
Given how high home prices are today, you may not be able to afford the higher monthly payments that come with a 15-year mortgage. But if you're looking for more interest rate savings on a home loan, then narrowing your borrowing window to 15 years might help you achieve that goal.
Not only do 15-year mortgages tend to come with lower rates than 30-year loans, but you also end up paying less interest by cutting your repayment period in half. So it pays to crunch the numbers and see if a 15-year loan is an option.
3. Shop around
When mortgage rates rise, they tend to do so somewhat universally. So if the average borrowing rate for a 30-year mortgage in your state is 5.9%, you probably won't find a lender willing to write you a 30-year loan at 3.9%. But it may be possible to snag a 30-year mortgage at 5.7%. And over time, that could result in a lot of savings.
That's why it's important to shop around for a mortgage rather than settle for the first offer you get. Comparing rates among lenders could help you spend less in the course of financing your home.
It's easy to see why higher mortgage rates may be driving more buyers out of the housing market. But if you have a nice down payment saved and you're eager to buy, it's worth seeing what steps you can take to lower your interest rate so you don't have to put property ownership plans on hold.
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