As luck may have it for homebuyers, interest rates have been at historic lows for some time now, with the benchmark 30-year fixed-rate mortgage remaining under 4 percent since 2011. This trajectory is predicted to change in 2018, however, with experts agreeing that the 30-year mortgage may reach 4.6 percent by the end of the year. Locally, Zillow has reported Oregon’s average 30-year fixed-rate mortgage at 3.77 percent as of January 2—just slightly higher than the national average.
What Do Higher Interest Rates Mean For Homebuyers?
Although mortgage interest rates are predicted to climb, they likely won’t take any large jumps over the course of 2018. Regardless, this change will affect purchasing power for everyone and may take some buyers out of the running for homes. For anyone contemplating a purchase in 2018, there’s no need to rush into the process, but it may be smart to research potential mortgage lenders and terms. It would also be beneficial to check up on credit scores and make sure your credit obligations are current and manageable, or better yet—paid off.
How Can a Homebuyer Get the Lowest Interest Rate?
Regardless of loan type, shorter loan terms typically earn lower interest rates. This especially rings true in the mortgage world, although most homebuyers will take out 30-year fixed-rate mortgages, which afford them a lower monthly payment and ultimately, lower personal risk.
Whether you take out a short-term or long-term mortgage, it pays to understand the tools you can use to your advantage before closing your real estate loan. Here are a few things you can do to edge your interest rate down:
Maintain or boost your credit score. It’s true that a credit score of over 700 will get you a good interest rate; you’ll want to stay above this number. Having a score above 760 will likely get you one of the bests rate available. If you’re not sure where you’re at, get a copy of your credit report and review it. Check for and correct any errors. Try not to open credit cards and lines of credit just before taking out a mortgage loan; a string of credit report inquiries can drop your score slightly. If you have a regular lender, check in with him or her for some additional tips on raising your score.
Lock in your mortgage rate. Also called a rate lock, the opportunity to lock in your mortgage is the ability to hold your loan at certain interest rate for a specific time period—with a guarantee from your lender. Rate locks can vary in cost depending on the lock’s length and which lender you’re using. Many lenders offer free 30-day locks, with graduating fees thereafter if you choose a longer lock period. This tool is a great hedge against rising interest rates, if you’re anticipate an upward swing. Take note, too, that some lenders may offer something called a lock float down, which is the opportunity to exchange your rate lock for a lower interest lock, should the rate drop.
Purchase some points. If you can afford it, you’ll be able to lower your loan’s interest rate slightly if you purchase something called discount points from your lender. Discount points are actually an exchange in which you pay some of your mortgage interest up-front and your lender gives you a lower interest rate in return. A point will cost you 1 percent of your mortgage, so if you take out a $100,000 mortgage, 1 point will cost you $1,000 at loan closing. Choosing to purchase points ultimately means you’ll need more cash at loan closing, so discuss the costs and benefits of this tool with your lender before deciding whether to use it. Time and money are important factors in a discount point purchase.
If you’re looking to buy real estate in the Eugene or Springfield area, contact us to speak with some of the most knowledgeable agents in the area.