Are you waiting for rates to go down to before you make your next move? That may cost you more than you think. Looking at the example in the graphic above we can see that if you wait to buy, your monthly payments may end up being greater than if you buy now and refinance later. Interest rates are expected to remain level for the rest of the year but experts predict we may see a decline after that. If interest rates decrease, buyer demand is expected to increase and when that happens, home prices will be pushed up. Waiting to buy may not be your best bet. Let's take a look at some of the most popular options to offset today's mortgage rates.
As we just mentioned, purchasing a home now with the intent to refinance later is one of the most popular home buying trends right now. When considering a mortgage refinance, you also have to factor the additional fees associated with refinancing. Buyers can expect to pay 2% to 5% of the loan principal amount in closing costs on a refi.
So even if mortgage rates do actually drop 1% to 2%, crunch the numbers and decide if refinancing would even save you enough money to make it worthwhile. History shows us that buying more house than you can afford is a terrible idea. So if you can only swing a house purchase because you’re banking on refinancing in a few years, take a step back. You need to still be able to afford the house at today's rates, the opportunity to refinance later will be a bonus!
Adjustable Rate Mortgages (ARMs) start out with a fixed rate for a certain period of time. Once this fixed period is up, your rate will adjust on a regular basis according to whatever index the rate is tied to. If you can get a significantly lower rate on an ARM than a fixed-rate mortgage, your monthly payment will be lower, giving you some extra room in your budget for other things, like saving for retirement. Plus, if your rate drops once the initial fixed period is up, your monthly payment will go down even further. While the hope is that rates will go down in a few years, if you are considering an ARM, you should prepare for the worst case scenario and be able to comfortably afford an increase in mortgage payments.
The larger the down payment you offer your lender, the lower your interest rate may be. A larger down payment generally means you’re a less risky borrower, and a less risky borrower means a lower interest rate.
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