Navigating the Mortgage Rates: Two Strategies for Homebuyers

As of August 31, 2023, mortgage rates are standing tall at 7.52% for a 30-year term—more than double compared to the 2% to 3% range we witnessed during the pandemic. While experts predict that these rates may climb even higher, there are smart moves homebuyers can make to secure a more favorable mortgage rate. Here's a quick look at two strategies worth considering:

Mortgage Points: Pay Now, Save Later
For those scratching their heads, mortgage points are upfront fees you pay to your lender to lower your mortgage rate. The fee can either be rolled into your mortgage loan or paid upfront during closing. The beauty of this approach is that while the initial expense may seem steep, it can add up to significant long-term savings. However, a word of caution: this strategy only really pays off if you plan to stay in your new home long enough to break even on the cost of these points.

Adjustable-Rate Mortgages (ARMs): Lower Rates, Higher Risks
In a climate where mortgage rates are sky-high, adjustable-rate mortgages or ARMs might seem like a risky bet. But, they offer an initial rate that's lower than fixed-rate mortgages. Keep in mind, though, that these rates will adjust—usually upwards. If you're considering this, you should also have a plan for potentially refinancing into a fixed-rate mortgage later.

The Bottom Line:
While the current mortgage environment is less than ideal compared to a few years back, you don't have to sit on the sidelines. Strategies like mortgage points and adjustable-rate mortgages offer ways to get better rates now, but they come with their own sets of risks and rewards. So, crunch those numbers and see what works best for you.