What Can You Do About Rising Mortgage Rates?

There’s no question that inflation has been on the rise in recent years.  In 2022, housing prices increased by 15.3%. As housing inflation goes up, so do mortgage rates. This is a real problem for homebuyers, who are already facing higher prices for homes.

Thankfully, there are some things you can do to offset the effects of rising mortgage rates. With that said, keep reading below to learn how you can stay afloat in a volatile real estate market.

Understanding Housing Inflation

First, it’s important to understand how inflation affects mortgage rates. When inflation is high, it means that prices for goods and services are rising. This in turn leads to higher interest rates, because lenders want to get compensated for the added risk. So, when inflation is high, mortgage rates usually go up as well.

But there are some things you can do to offset the effects of rising mortgage rates.

Fighting the Effects of Inflation

Although the real estate market is tough and rising mortgage rates are putting a strain on homeowners, it’s possible to combat housing inflation. Take a look at a few tips below:

Making a Large Down Payment

One way to offset the effects of higher mortgage rates is to make a larger down payment on your home. Doing so will reduce the amount of money you need to borrow. Therefore, the amount of interest you’ll have to pay.

If you can afford it, a down payment of 20% or more is ideal. Not only will it reduce your interest payments, but it will also help you avoid paying private mortgage insurance (PMI).

Get a Fixed-Rate Mortgage

Another way to offset the effects of rising mortgage rates is to get a fixed-rate mortgage. With a fixed-rate mortgage, your interest rate will be locked in for the life of the loan. This means that no matter how high rates go, your payments will stay the same. A fixed-rate mortgage can provide some peace of mind in an uncertain market.

Pay Discount Points

If you’re looking to buy a home soon, you may be able to pay discount points to get a lower interest rate. Discount points are a one-time fee that you can pay at closing, and each point is equal to 1% of the loan amount.

For instance, if you’re taking out a $200,000 loan, one point would cost you $2,000. Paying points can help reduce your interest rate, and in turn, lower your monthly payments.

Get a Conventional Loan, Not an FHA Loan

If you’re a first-time homebuyer, you may be tempted to get an FHA loan. These loans are backed by the federal government and typically have lower down payment requirements. But they also come with higher interest rates.

So, if you’re looking to offset the effects of rising mortgage rates, you may want to get a conventional loan instead. Conventional loans typically have lower interest rates than FHA loans, so you’ll save money in the long run.

Get an Adjustable Rate Mortgage

If you’re looking for a lower interest rate, you may want to consider an adjustable-rate mortgage (ARM). With an ARM, your interest rate will be fixed for a certain period of time, usually 5 or 7 years. After that, it will adjust based on market conditions.

ARMs is a good option if you’re planning on selling your home within a few years. The initial rate for this mortgage is usually lower than that of a fixed-rate mortgage. So, you can take advantage of that fixed rate for the first few years.

But if you plan on staying in your home for the long haul, you’re better off with a fixed-rate mortgage.

Should I Avoid Buying a Home During Housing Inflation?

In short, no. Although rising mortgage rates can put a strain on your budget, there are ways to offset the effects. And down the line, real estate is still a good investment. If you’re thinking of buying a home, don’t let inflation scare you away.

Here’s what you should do:

Speak to a Mortgage Broker

If you’re looking to buy a home, it’s a good idea to speak to a mortgage broker. They can help you compare interest rates and find a loan that’s right for you.

You don’t want to rush into a loan with a high-interest rate, so it’s worth taking the time to shop around. Speaking to an expert can save you a lot of money in the down the line.

Look for a Fixer-Upper

If you’re on a budget, look for a fixer-upper. This way, you can get a home for a lower price and make the necessary repairs yourself. Just be sure to factor in the cost of repairs when you’re budgeting for your new home.

Rent for a While

If you’re not ready to commit to a mortgage, you can always rent for a while. This will give you time to save up for a down payment and wait for the real estate market to stabilize.

Whatever you do, don’t let rising mortgage rates deter you from homeownership. There are still plenty of ways to get a good deal on a loan.

If necessary, you should also get rid of any housing debt that’s costing you a fortune, such as a timeshare. Take a look at the highlighted link to learn about timeshare cancellation.

Combat Rising Mortgage Rates

Rising mortgage rates are a real problem for homebuyers. But you don’t have to drown under the effects of inflation. These strategies listed above can help you keep your payments manageable, even when rates are high.

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