Mortgages Have Gotten Expensive -- but Here's One Way You Can Save

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  • Mortgage rates have risen sharply since the start of the year.
  • While you'll pay more to borrow now, there's one step you can take to potentially shrink your rate.
  • Improving your credit score before you apply with a lender may ensure you'll get a lower rate.

It's not a totally hopeless situation.

For much of 2021, it was more than possible to sign a 30-year mortgage at under or around 3%. But those days are long gone. Mortgage rates have risen at a rapid clip since the start of 2022. And at this point, borrowers are looking at somewhere in the ballpark of 7% for a 30-year mortgage.

You might be able to snag a lower rate on a mortgage by signing a shorter-term loan. But you also might not be able to swing the higher monthly payments that come with a 15-year loan (especially given today's inflated home prices).

Another option for saving some money on your mortgage rate is to sign an adjustable-rate mortgage (ARM). But that can be a risky proposition. If the rate on your mortgage increases over time, it could make your monthly payments difficult to keep up with. And while you might be able to refinance out of an ARM, there's no guarantee that you'll be able to do so.

Your best bet, therefore, may be to do what you can to snag the lowest possible interest rate on a 30-year loan. And one move on your part could help you eke out some savings.

A higher credit score could go a long way

Market conditions play a big role in determining what rate a given mortgage lender is willing to offer you. But your credit score will also play a role. And the higher that number is, the lower the rate you're likely to snag.

A higher credit score tells lenders that you're a lower-risk borrower -- that you're likely to pay your mortgage on time every month. In exchange for not taking on as much risk, a lender might reward you with a lower interest rate. And so if you're able to boost your credit score (or keep an already good score where it is), you might manage to squeeze out some savings and lock in monthly mortgage payments that are more manageable.

How to boost your credit score

There are several ways to boost your credit score, some of which might take longer than others to have an impact. One option is to pay down some existing credit card debt if you can. The less of a total balance you have relative to your total spending limit (also known as your credit utilization ratio), the more your score might improve.

Another move worth making is checking your credit report and correcting any errors you spot. In fact, this could be one of the quickest, easiest ways to give your credit score a boost.

Finally, make sure to establish a solid payment history by paying all bills on time. If your credit score needs work, it might take several months of timely payments for this aspect to improve. But since your payment history carries more weight than any other factor when calculating your credit score, it's really worth focusing on.

Mortgage rates may be up today. But if you do your best to boost your credit score, you might find that your home loan ends up being just a bit more affordable.

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