Understanding your options to combat higher interest costs

Average mortgage interest rates have jumped fairly significantly over the last couple of years — but that doesn't mean you have to be worried. There are several tools at your disposal as a buyer to combat these higher rates and set yourself up for long-term success in the market. Here's how.

More of a reader? Catch the video transcript below!

Hey everybody, Brent the Broker here 👋🏼

Today we’re going to be talking about the higher interest rates we’re seeing these days and what you can do to combat them. So, let’s jump in.

Interest rates started the year around 3%, and now they’re roughly in the ballpark of 6%.

That’s a huge jump in a very short period of time, and when you couple it with the increase in values we’ve seen in the last couple of years, it can be hard for people to find a deal they can afford.

Buyers might feel a little spooked right now, and I totally get that; however, there are ways we can combat it.

How can I combat these high mortgage interest rates?

1. Consider a Rate Buydown

One way to get ahead of these high interest rates is with something called the rate buydown.

This allows you to pay money to buy the interest rate down. If there’s less competition in the market, you may be able to get the seller to participate and give you a credit to bring the interest rate down so that the price you’re paying for the house is actually something that you can afford on a monthly basis.

2. Choose an Adjustable-Rate Mortgage (ARM)

Adjustable-rate mortgages typically come at lower interest rates than 30-year fixed loans. That’s because the bank has less risk.

You might be thinking, “Brent, why would I want to be on an adjustable-rate mortgage? My housing payment is going to balloon! Isn’t that what caused the last crash?”

Those questions are legitimate! An adjustable-rate mortgage isn’t going to be for everyone. If you know that you’re going to be in this home for 10+ years, being in a five-year ARM (meaning it’s fixed for the first five years) wouldn’t make much sense. But if you know you’ll be in the home for five years or less anyway, like a lot of the military members here in San Diego for a short time period, it might make sense to opt for an adjustable-rate mortgage.

3. Opt for a Shorter Loan Term

I know this isn’t going to be an option for everybody because it actually makes your payment a bit higher, but the shorter the loan term you’re on, the lower the rate is.

A lot of people wonder, “Well, if I’m going to cut my loan term in half, wouldn’t that double my monthly mortgage payment?”

Nope! Now, your payment will go up, but because your interest rate is lower, it’s not going to double. Run the numbers for yourself, compare the monthly payments, and see if a higher payment is something you can swing.

Pro Tip of the Day

So guys, interest rates are high right now, but there are ways you can combat this and lower your rate. The interest rate should not be the only thing you’re considering when you’re buying or selling property.

The market is shifting and we’re seeing different dynamics in today’s market than what we were seeing six months ago, but that doesn’t mean there aren’t great deals to be found out there. There are tools we have at our disposal that can make a deal work for you.

If you’re considering buying real estate, the interest rate should be one of the many factors you consider, along with your financial situation, your goals, your timing, how much you’re paying in rent, and what makes sense for you.

So, that’s it for today! See you in my next post!