Buying
When buying a home, you must know how much you can afford. Understanding all of the details of your mortgage and knowing money-savvy tips to help you save is important too! Let's take a look at some of the most popular options to offset today's mortgage rates.
“Marry the home, date the rate”—we’ve heard this homebuying approach phrased a number of ways. The idea is that buyers who take out a loan now can refinance in the future when rates drop. 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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