What if mortgage rates stay high? 3 things buyers can do now
After promising signs that it was cooling off, inflation ticked back up in July, giving many Americans pause. With higher costs come higher interest rates meant to combat it. And, after the Federal Reserve made yet another increase last month interest rates hit a 22-year high, the benchmark interest rate is now sitting at a range of 5.25% to 5.50%, leaving many borrowers with few options.
This has been felt for everything from credit card usage to personal loans to homebuying. With interest rates for mortgages currently around 7%, many buyers have elected to sit tight until they come back down again. But they don't have to be completely idle, either. In fact, there are some things buyers can do now, even if mortgage rates stay elevated.
Start by exploring your personal mortgage rate options here now to see what you qualify for.
What homebuyers should do in today's high rate environment
Here are three things prospective buyers can still do in today's high rate environment.
Shop around for lenders
Will you find the 3% interest rate of the recent past by shopping around for lenders? That's unlikely. But you still may be able to secure a better rate by shopping around instead of committing to the first lender you find. The difference in rate quotes you get may be small, but every point (and every tenth of a point) still counts, particularly now.
Most experts would recommend getting quotes from at least three lending institutions, although it couldn't hurt to get more. Just make sure you coordinate your research appropriately and time your requests within a short window. Otherwise, you could damage your credit score with multiple, prolonged credit qualification checks.
You can easily compare rates and lenders online here now.
Consider buying mortgage points
Mortgage points allow borrowers to get a lower interest rate than the market rate — for a fee. By paying the fee upfront (or by rolling it into your overall mortgage loan), you could secure a lower interest rate, thus opening the potential to buy a home now.
While you won't be able to buy points that drop a 7% mortgage to 2%, you may be able to get it down to 6.6% or slightly lower. That difference could add up over time — making your immediate mortgage payments more manageable.
Just plan on staying in your new home long enough to recuperate the costs spent to obtain the mortgage points. Otherwise, it may not be worth it.
Improve your credit as much as possible
While a 7% interest rate may not be particularly appealing, it could be worse. And it will be if you apply for a mortgage with a low credit score or incomplete credit history. The best and lowest mortgage interest rates are reserved for those with the best credit, so if your score is subpar you'll want to make every effort to improve it.
This can include paying down (or off) existing debts, paying bills on time (or early) and not applying for any additional credit. Every additional credit application you submit will require a credit check, resulting in your score getting dropped further.
By improving your credit score — and maintaining it at a high level — you'll be best positioned to get the lowest rate available.
The bottom line
The low mortgage interest rates from 2020 and 2021 are in the past, with no real expectation that they will return anytime soon. That said, there are still some advantages to buying a home now — and there are things buyers can do to get the best rate possible in today's market. By shopping around for lenders, buying mortgage points and improving your credit score as much as possible, you'll position yourself for the very best rates and terms available while still keeping an eye on a potential refinance in the future. Get started here now!
