Mortgage Rates Are Rising, but These Moves Could Help You Score a Lower Rate
- The average 30-year mortgage rate just reached 5%.
- In light of rising rates, it's important to be strategic in your approach to getting a mortgage.
There are still steps you can take to eke out some savings.
During the second half of 2020, mortgage rates plunged to record lows. And rates stayed low through the end of 2021.
But things shifted at the start of 2022. Not only did rates start climbing, but they've done so at a rapid clip. In fact, at the beginning of the year, the average 30-year mortgage rate was under 4%. As of this writing, it's at just over 5%.
Compounding the pain for buyers is the fact that home prices are up right now. So buyers today face a double whammy -- higher borrowing costs and inflated prices. That's why it's so important to snag as low a mortgage rate as possible. And these moves could be your ticket to doing just that.
1. Boost your credit score
Your credit score is a reflection of how risky a borrower you are. If your score is high, it sends the message you're likely to keep up with your loan payments. If your score is low, it means lenders may have to grapple with the possibility of not getting repaid on schedule.
Meanwhile, lenders tend to give out mortgage rates based on risk -- the more of it they take on, the higher a rate they tend to charge. If you want to reap some savings on a mortgage, do your part to raise your credit score as much as possible. You can do so by paying all bills on time, whittling down credit card balances, and correcting errors on your credit report.
2. Pay down some existing debt
While your credit score will play a big role in the mortgage rate you get, so will your debt-to-income ratio, which measures how much debt you're on the hook for relative to your income. The lower that ratio, the less risk lenders take on.
To shrink your debt-to-income ratio, try paying off as much debt as you can before applying for a mortgage. Your best bet is to focus on credit card debt first, since it directly impacts your credit score. From there, you can work on paying off a personal loan balance or auto loan if you still have one hanging over your head.
3. Shop around with different lenders
While the average 30-year mortgage may be hovering around 5% right now, you may be entitled to an offer that's modestly better -- if you manage to find it. That's why it's so important to seek out offers from different mortgage lenders before signing on for a home loan. Each lender ultimately sets its own rate based on factors like credit score and debt-to-income ratio, as well as loan amount and income, so shopping around should help you make an informed decision.
It's unfortunate that mortgage rates are rising at a time when home values are so high. That combination is forcing a lot of buyers to put their plans on hold until affordability levels improve. But if you're set on buying a home in the near term, do your best to snag as low a mortgage rate as possible. Doing so could make it much easier to keep up with your payments -- and avoid unwanted financial stress.
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