Ways to Lock In Lower Mortgage Rates: It is expected that the affordability squeeze will continue, unless creative mortgage arrangements can be made, as home prices are at their highest level in over 30 years.
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Freddie Mac reported in recent weeks that a 30-year fixed-rate mortgage cost 6.9%, with volatility expected due to consumer spending and inflation.
The median home price in the U.S. was $384,500 in February, up 5.7%.
After the National Association of Realtors changed its rules on agent commissions, there’s uncertainty about how buyers and sellers will share commissions.
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Ways to Lock In Lower Mortgage Rates
Mortgage buydowns temporarily
Over the past 16 months, as mortgage rates have climbed as high as 8%, this incentive-where a seller or builder typically pays an upfront fee to lower a buyer’s mortgage rate-has gained popularity.
A temporary buydown is usually negotiated between the buyer, seller, and lender in order to make a mortgage more affordable over the term of the loan.
John Burns Research & Consulting’s senior vice president of research surveys, Jody Kahn, says builders use it as an incentive, especially for first-time buyers.
Buydowns cannot be used on investment properties or cash-out refinancings, says Kate Amor, senior vice president and head of enterprise products at Guaranteed Rate.
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Consider all options
Besides conventional mortgage loans, lenders offer other ways to lower interest rates. By buying mortgage points, borrowers pay a fee to the lender in exchange for a lower rate (about half a percentage point).
It is possible to pay this fee at closing or roll it into the overall mortgage loan, but it could result in significant savings over the long term.
Adjustable-rate mortgages adjust over time (usually after a few years), but fixed-rate mortgages don’t.
Still, buyers might get a lower rate than they would have had they gone the conventional route, and if the market changes again, they can refinance.
For buyers seeking a lower mortgage rate immediately, both mortgage points or adjustable-rate mortgages are viable options (both cost money and carry inherent risks).
Points can be purchased for discounts
By buying prepaid interest points at closing, home buyers can lower their mortgage payments for the life of the loan. The interest rate won’t change unless you take out an adjustable-rate mortgage.
You can buy up to 3 discount points based on your financial situation, the lender’s guidelines, and state and federal regulation limits. Discount points lower your interest rate by 0.25 percentage points to 0.5 percentage points, depending on the lender and loan scenario.
Rocket Cos.’s chief business officer, Bill Banfield, suggests buying down if you plan on staying in the home for 5 to 6 years.
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Mortgages that can be assumed
A seller can transfer his or her existing mortgage to a buyer who then takes over the remaining loan balance, repayment period, and other terms of the seller’s existing loan. When the seller secured a lower mortgage rate, they are appealing to buyers.
The buyer must meet certain qualification requirements with regard to credit and income before accepting a mortgage, and sometimes the seller must also meet certain qualifications to transfer the loan. The loan balance must also be covered by enough cash.
Black Knight, a mortgage-data and technology company, estimates that there are about 12 million assumable mortgages in the U.S.
A $400,000 mortgage at 7% would cost $2,661 a month for interest and principal. An assumable loan at 3.5% would cost $1,796.
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