Your Mortgage: Mortgage rates are rising, but you can lower yours

Mortgage rates have been rising throughout 2022 but before we talk about that, let’s have a quick mortgage rate reality check:

1974 – 9.19%

1981 – 16.63%

1985 – 12.43%

1990 – 10.13%

2000 – 8.05%

2022 – 5.875%

Okay, now that we’ve covered that, let’s talk about just a few ways to lower your rate in a rising rate environment.

The 30-year fixed mortgage rate is the most common loan scenario for most borrowers. You pay the “market” rate and it’s locked in for 30 years. But the average homeowner stays in their home or refinances it every 4-7 years. Very few buyers actually pay the original rate they secured at the time of purchase for the entire 30 years. So if the market rate is higher than you’d like to pay, you have options. 

In this “2/1 Buydown” scenario, a fee is paid upfront to lower the rate in the first year by two full percentage points and by one full percentage point in the second year. In the third year, and each year thereafter, the rate resets to the original 30-year fixed market rate. This “buydown fee” can be paid by the buyer or the seller of the home. Some sellers are offering this as an incentive to buyers instead of lowering the purchase price if the house is sitting on the market for more than a week. As you can see in this scenario, if you plan on owning the home for a shorter amount of time or if you can negotiate the buydown with the seller, this option can save you tens of thousands of dollars. Plus, if rates improve before the third year, you can always refinance to a lower rate. 

When fixed mortgage rates spike, some borrowers turn to adjustable-rate mortgages (ARMs). ARM loans offer lower rates fixed for a set period of time — typically the first three, five, seven, or 10 years of a 30-year loan. These intro rates generally are lower than the interest rate charged for a fixed-rate mortgage loan. ARMs make sense if you plan to live in a home for a shorter period than the intro rate or you want a lower monthly payment ahead of an expected salary raise or bonus. You can also refinance your ARM into a fixed rate mortgage if and/or when rates improve.

This weekly Sponsored Column is written by Fountain Mortgage. Located in Prairie Village, Fountain Mortgage is dedicated to educating, and thus empowering, clients to make the best financial decision possible for their situation. Contact Fountain today.

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