When people are thinking of buying a house when interest rates are high, they typically ask if now is a good time to buy a house.
As 2022 draws to a close, the answer to that question depends. If you have the option to wait, you should talk to a trusted local real estate agent to see if it makes financial sense for you to buy a house. If you have to move, there are still ways you can soften the blow to your wallet by the current high interest rates.
Bite the bullet now, refinance ASAP
The hope here is that within a couple of years the interest rates on home loans will start to fall significantly. The obvious risk here is that they may not. Closing costs on refinancing are 2% or higher. So, the rates truly would need to see a sizable drop.
Consider an adjustable rate loan
Nationally, we are seeing far more home buyers go with adjustable-rate mortgages as opposed to fixed-rate mortgages. An adjustable-rate mortgage (ARM) is a home loan that adjusts over time based on the market.
You can also get a convertible ARM which will allow you to convert your ARM to a fixed-rate mortgage later. Even if your ARM doesn’t have a conversion clause, you can usually still refinance to a fixed-rate loan if you qualify.
Just be aware, ARM loans do cost more upfront. And just as rates could go down, they could go up as well.
Buy down your interest rate
If you have a lot of money saved up, you can lower your interest rate either permanently or temporarily by paying more upfront.
How much it costs for each discount point will depend on how much you are borrowing. Each “point” is equivalent to 1% of your loan amount.
Say your mortgage is $300,000 and you’re offered the ability to reduce your interest rate by .25% for a point. If your mortgage has an interest rate of 5%, paying $3,000 would lower your interest rate to 4.75%.
If competition is low in your housing market, you could even request a seller’s credit to accomplish this.
However, this will only make sense if you plan on staying in the home for a long time. It takes several years to break even on paying down a point. So, if you believe rates are going down by that time you might want to save your money in preparation to refinance.
Put more money down
Again, if you’re in the camp that believes interest rates are going down in the next several years, you may want to save for your ensuing refinance.
However, if you think you’ll have the money to do both, paying more upfront will:
- Give you leverage to negotiate a better price
- Lower your monthly payments
- Reduce the amount of money lost to interest
- Increase your home equity
Buying a house in Bolivar when interest rates are high
If you’re looking for a home in the Bolivar, MO or greater Southwest Missouri area, Partin Real Estate has been the name people around here have trusted for over 30 years to help them find their next home.
While interest rates may be high right now, home prices are dipping, the competition is softening, and you’re less likely to run into competing offers waving inspections or appraisals.
If you’re needing to look for a home now, give us a call at 417-326-4270 or fill out the form on this page!