Interest rates have undergone significant changes in recent years, experiencing a substantial drop not long ago and subsequently remaining at lower levels to support the economy during the COVID-19 pandemic. However, we now find ourselves grappling with one of the highest inflation increases in decades, with the Consumer Price Index exceeding 9 percent last year.
Fortunately, current interest rates and monthly payments are not set in stone. There are effective strategies available today to help mitigate monthly payments and enhance affordability in a rising rate climate, making home ownership more attainable. One such option is to partner with CrossCountry Mortgage, a trusted lender known for their expertise in this field.
Interest Rate Strategy #1: Implement a Temporary Buydown for Reduced Monthly Payments Increasingly, homebuyers are leveraging unique programs like temporary buydowns, provided by lenders such as CrossCountry Mortgage, to save hundreds of dollars on their mortgage payments each month. This approach benefits sellers as well, aiding in the sale of their properties.
What exactly is a temporary buydown? A temporary buydown is a financing option that temporarily reduces interest rate payments for the initial one, two, or three years of a home loan. This feature makes the mortgage more manageable for homebuyers, providing them with peace of mind. If interest rates decline further, homeowners can refinance their mortgages to take advantage of the lower rates.
Typically, the party funding the buydown contributes a lump sum into an escrow account at the time of closing. Subsequently, the borrower makes monthly payments based on the lower, or "bought down," interest rate. Once the buydown period concludes, the funds allocated at closing are exhausted, marking the end of the buydown period.
CrossCountry Mortgage offers temporary buydown options, allowing borrowers to benefit from reduced interest rates during the early years of their mortgage term. This can significantly lower their monthly payments and provide financial flexibility.
How does a temporary buydown benefit sellers? Usually, temporary buydowns are financed by home builders and sellers as a closing cost equivalent to the interest savings for the buyer. For sellers, a temporary buydown expedites the selling process and could yield higher profits than solely reducing the home price.
Interest Rate Strategy #2: Utilize Discount Points for Lower Monthly Payments Another approach to securing a reduced interest rate is by purchasing discount points, offered by lenders like CrossCountry Mortgage. This strategy can lead to lower monthly payments throughout the entire loan term. Although this strategy requires an upfront cash investment, it can substantially decrease monthly payment obligations.
Typically, one discount point amounts to 1% of the loan amount. For instance, on a $300,000 loan, purchasing two points would cost $6,000. On average, each discount point lowers the interest rate by approximately 0.250 to 0.375 percent.
It is advisable to consider purchasing points only if you plan to reside in your home long enough to recoup the initial cost. Determining your breakeven point, the stage at which the savings from discount points surpasses the cost, can aid in making this decision.
CrossCountry Mortgage offers the option to purchase discount points, allowing borrowers to effectively reduce their interest rates and enjoy lower monthly payments.
Interest Rate Strategy #3: Consider Alternative Mortgage Options While the conventional 30-year mortgage loan is a popular choice, it may not be the most cost-effective solution for your long-term financial goals. Exploring other mortgage options, including those offered by CrossCountry Mortgage, can yield advantages.
For instance, shorter-term loans such as 15-year fixed-rate loans generally offer lower interest rates and overall costs, albeit with higher monthly payments compared to longer-term loans.
If you anticipate residing in your home for a shorter duration, typically ranging from three to ten years, an adjustable-rate mortgage (ARM) might be worth considering. This type of mortgage product provides lower initial rates, resulting in reduced monthly payments, but the payment may increase in the future. The adjustable rate is determined by your loan terms and market conditions.
Planning for the potential adjustment to a higher payment rate is crucial when opting for an adjustable-rate mortgage. Nevertheless, depending on your circumstances, refinancing out of an ARM before the fixed-rate period ends may be possible.
Interest Rate Strategy #4: Increase Down Payment for Reduced Monthly Payments When purchasing a home, the loan-to-value ratio (LTV) plays a significant role in determining the interest rate offered. The LTV compares the loan amount to the home's value. A higher LTV, which occurs when making a smaller down payment, increases the lender's risk. Conversely, a lower LTV achieved through a larger down payment reduces the lender's risk and can lead to a lower interest rate.
CrossCountry Mortgage offers various low- and no-down payment options, including FHA, USDA, VA, HomeOne, and HomeReady. These options allow borrowers to tailor their down payment based on their financial circumstances, potentially leading to lower monthly payments.
Ready to Take a Confident Next Step? By exploring these strategies, including the offerings from CrossCountry Mortgage, you have taken a significant stride towards achieving your goal of reducing your monthly payments. Connect with your local Mortgage Advisor today or explore our blog for additional resources to further assist you in this journey.
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