How to get a below-average mortgage rate in today's economy
Following months of encouraging inflation news, a report for July showed it ticking up yet again, temporarily slamming the brakes on wider economic optimism. That report comes amid the highest benchmark interest rate in 22 years and the highest mortgage interest rates since 2000. And, the forecast is unclear. Additional rate hikes could be coming later this year as the Federal Reserve continues to battle toward a 2% inflation rate goal.
Combined with lower housing inventory, these factors have left many prospective homebuyers on the sidelines. With the current average mortgage interest rate around 7%, many feel like now is not the best time to lock in a rate and buy a home. And while the abnormally low rates of 2020 and 2021 are unlikely to return any time soon, there are still some steps buyers can take now to secure a below-average mortgage rate.
Start by exploring your mortgage rate options here now to see what you qualify for.
How to get a below-average mortgage rate in today's economy
Here are three things buyers can do now to secure a below-average mortgage rate.
Purchase mortgage points
Mortgage points act as a fee that buyers can pay their lender to secure a lower rate than what they would have received without it. Think 7.00% with points in today's market and 7.25% without it. The fee can be paid upfront at closing or it can be rolled into the overall loan amount. While an additional fee may not be preferable, particularly now, it could be worth it for buyers hunting for the lowest rate possible.
That said, buyers should crunch the numbers before agreeing to the points. It may not be worth it if you're not planning on living in the home long enough to break even on the added cost. It also may not be valuable if you're planning on refinancing to a rate lower than what can be secured with the addition of the mortgage points. Speak to your lender to thoroughly review the pros and cons first.
Check rates and terms here now to learn more.
Consider an adjustable-rate mortgage
An adjustable-rate mortgage isn't for everyone, and many experts would recommend approaching this mortgage type cautiously. But if the immediate goal is to get a lower mortgage rate, this could be one effective way to achieve it.
Adjustable-rate mortgages are what they imply: the rate will adjust over time. So, buyers may be able to temporarily get a lower interest rate than what's currently available. But that rate likely will increase in the future, at which point buyers will get stuck paying more — or be forced to a refinance into a fixed rate. Still, it could be worth it for those looking to save as much money as possible on their rate right now.
Shop around for lenders
While banks and lending institutions will be largely influenced by the Federal Reserve, not all will offer the same exact rate to borrowers. Some will be higher than and some will be lower than average. You won't know which is the lowest, however, unless you shop around to compare rates and terms.
Get rates from at least three different banks to compare against and be sure to check the fine print to make sure you're not making up the difference with a lower rate by paying for something else. When shopping for lenders, also do your due diligence by asking them what their rates are for adjustable-rate mortgages. And see what you can get from each if you're willing to pay for mortgage points. The more research you do, the better your chances of securing a below-average mortgage rate.
Start exploring your rates and options here today.
The bottom line
While today's mortgage rates are not as appealing as they were just a few years ago, buyers aren't completely out of luck either. They can still secure a below-average mortgage interest rate by shopping around for lenders. They can pursue an adjustable-rate mortgage, which typically come with lower interest rates (to start). And buyers can also explore their mortgage points options, which may be worth buying for those who are planning on remaining in their home long enough to break even on the additional cost.
