Mortgage Options When Rates are Moving Higher
We've seen interest rates spike quite a bit over the last few months which may have stalled some borrowers' plans for purchases or refinances but that shouldn't stop you from continuing with either transaction. Although mortgage rates have ticked up, they are still relatively low and with a couple of modifications to your initial plans, below are a few areas where you could offset the higher payments.
Consider Alternative Mortgage Types. 30-year and 15-year fixed-rate mortgages are more popular however, in a rising rate environment, affording the payment may no longer be an option if those rates make your payment unattainable. Depending on how long you plan to live in the home, might determine a closer look into adjustable-rate mortgages which typically have lower interest rates. For example, a 7-year arm has a fixed rate for the initial term (7 years) before it would start to adjust. If you're considering moving or refinancing before the fixed-rate period ends, an adjustable-rate mortgage could be a good fit.
For Purchases. You may want to broaden your geographic location preferences. If you were initially looking in a specific neighborhood that now may be priced out of your budget, consider expanding your search outside that neighborhood where there might be additional options to meet your new budget. Seek a realtor who knows the market well. They may be able to find hidden gems that have not been listed on popular property search sites. You may also want to consider putting more money down or buying down the mortgage rate with points. Talk with your loan officer to see if these options will work for you.
For Refinances. Consider consolidating credit cards or other high-interest rate debt. The Fed is talking about several more rate increases to stifle inflation. Although the Fed does not directly affect home loan rates, it does affect other interest rates such as credit cards and auto loans. If you have credit card debt or other high-interest loans, you may benefit by consolidating that debt into a refinance with a much lower interest rate. If you're happy with your first mortgage rate and still want to consolidate the higher interest rate debts, you might want to consider a Home Equity Line of Credit (HELOC). HELOC's have become an increasingly popular choice since rates have ticked up. Talk with your loan officer to see which option works best based on your needs.
Bottom line: Although home loan rates have increased, there are still opportunities for both purchase and refinance transactions. Take time to research your options to find which ones best fit your budget.
Mortgage Market Guide
Guy Vetrano with Bay Equity Home Loans