Mortgage Rates Are Back. Now What?

During the Covid-19 pandemic and subsequent quarantine, mortgage rates hit a record all time low. But, what goes down must come up, right? So it seems the pendulum has swung wildly in the other direction. Since New Year’s Day we’ve seen a rapid increase in mortgage rates which are now sitting at a ten-year high. If you missed out on the low numbers, there are a few options for combating high rates. 

It all starts when potential homebuyers get preapproved. When this happens, not only do you know the amount you’re approved to borrow but it also locks in your mortgage rate for 60 days. This way if the rate fluctuates while you’re home shopping, it doesn’t affect your budget. 

What If You Need More Time?

However, sometimes it can take longer than 60 days to secure a home. In this case, you run the risk of losing a potentially lower rate. (Especially in 2022, where mortgage rates jumped almost two full percentage points in the span of barely two months.) 

Buyers have the option to pay fees to continue their locked-in lower rate. According to the Wall Street Journal, “A borrower can buy points at a rate of 1% of the value of the mortgage; each point lowers the rate by a fraction of a percentage point.”

In their article, the WSJ profiled a buyer who opted to buy points and also to buy down their mortgage rate. The buyer, whose February rate was locked in at 3.5%, was due to meet his 60-day expiration. Instead, he opted to pay $1,700 to his lender to extend his locked-in rate. Additionally, he paid $4,600 for discount points to reduce his rate to 3.25%. 

It may seem counterintuitive to spend money to save money but these discounts add up to a monthly savings of $500 than if he’d been saddled with current rates. The savings will pay for themselves in barely over a year. 

If you have any questions about locking in percentages or buying down rates, talk to your lender today!