Mortgage rates are on the rise with Bankrate.com reporting that rates have reached the highest levels seen in the past two months. This news, however, shouldn’t cause consumers to panic as rates are still not far off the historic lows reached before the Great Recession. The average rate on a 30-year fixed rate mortgage is now 4.79 percent, well below the forecast some analysts had predicted we would see by now.
For the homeowner buying a home with a $200,000 mortgage at 4.79 percent, the monthly payment excluding taxes, fees and homeowners insurance is $1,048.12. That amount, however, is much lower than when interest rates were last above 6 percent, a level not seen since November 2008. Homeowners who bought at that time would see payments today of $1,241.86, a difference of $193 per month. Still, with interest rates on the rise, consumers should consider what they can reasonably afford and make their decision based on that information.
Consumers can also minimize their home buying expenses by keeping the following in mind:
Credit score — The higher your credit score, the more likely you’ll be given the most favorable loan terms. Bankrate and others typically calculate interest rates based on very good or excellent credit. Your lender will score you and offer a rate based on your creditworthiness. You might obtain an even better rate if you’re considered a good risk.
Private mortgage insurance — You can lower your costs by coming up with a larger down payment. Put down 20 percent or more and you avoid paying private mortgage insurance, an expense that can make it difficult for some people to buy a home and cover monthly costs.
Automatic deductions — Some lenders will shave an eighth of a point off of your mortgage rate if you agree to making automatic payments. That difference may not sound like a lot, but over the course of your loan it could save you thousands of dollars.
Go flexible — Adjustable rate mortgages have been scorned by some, particularly by people who were burned when they were qualified for an extremely low rate mortgage, but got burned upon reset several years later. Variable rate mortgages are still worth considering, especially for the prudent shopper. Buy only the home you can afford and take out a 7/1 ARM, at the current rate of 3.72 percent. At 3.75% your monthly payments for the first 84 months would be $926.23, saving you $122 per month off of a 30-year fixed rate mortgage. You can always refinance later, well before the mortgage reset kicks in.
Buying a home today means working with a lender who understands your needs and can tailor a mortgage accordingly. Check out this mortgage calculator to ensure that the home you buy today is one you can afford tomorrow.
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