Looking to Save on Your Mortgage?
How to make home-buying more affordable, even in today’s challenging market.
Where are mortgage rates, home prices, and home availability headed in 2023? Real Estate experts have mixed opinions about the 2023 housing market, largely because it will depend on what happens with inflation and the broader economy.
- Buy points. Mortgage discount points are a way to permanently lower your interest rate—for a price. They are essentially fees you pay a lender to reduce your interest rate, sometimes referred to as “buying down the rate”. While this strategy requires an upfront payment, it can reduce your total interest payments and can pay off significantly if you stay in your home long enough to realize the savings. The longer you keep your mortgage, the greater the net savings.
You can buy a fraction of a point or up to several points. Each point typically costs 1% of the mortgage amount (one point on a $400,000 mortgage costs $4,000). Points reduce the interest rate of your loan, typically by 0.25% per point, resulting in meaningful savings on a 30-year mortgage if you plan to keep it for more than a few years.
You Could Be Paying Less for Your Mortgage
Take advantage of a range of financing options, a special rate discount, and savings on closing costs.
- Ask your seller to fund a temporary rate buydown. In a slowing housing market, your seller may be willing to buy down your rate temporarily as an incentive to close the deal. As a concession, your seller can contribute a portion of the sale proceeds towards your mortgage payment for the first few years. A common scenario is a “2/1 buydown” whereby the seller pays to cut your rate by 2% for the first year and by 1% for the second year. This short- term benefit is more significant than reducing the home’s sales price, which would spread the savings over the entire life of the loan.
- You still must qualify for the higher interest rate, as the lender will want to ensure you can make the permanent payments once your temporary buydown ends. While refinancing may be an option in the future, it’s not guaranteed, so it’s important to make sure you can afford your eventual payments.
- Adjust your expectations—and your down payment. A home purchase is a pivotal financial decision, so make sure you’re considering homes that work within your budget. A less expensive house may enable you to make a larger down payment, which will reduce your mortgage rate because the lower your loan-to-value (LTV)—the amount you borrow relative to the sales price—the less risk you present to a lender.
By putting down a little more, you’ll benefit from lower monthly payments, which can save you thousands over the life of your loan. Just make sure you leave yourself with enough savings to cover emergencies and other unforeseen expenses which always come with a new home.
There are additional ways to secure mortgage discounts like those offered through the Alumni Benefits Program. Our mortgage benefits come with a 0.25% rate discount. You’ll also save on closing costs and can even receive a cash rebate when you secure your mortgage through this program.+