Getting A Lower Rate

Gone are the days of pandemic level interest rates. We, as a country, got all too comfortable with historically low rates over the past three years. Having mortgage rates in the 2s and 3s flooded the market with would-be buyers and made it to where some homes sold in a matter of hours. This summer, in order to curb inflation, the Fed raised rates into the 5s, the largest jump in decades. 

This jump has left buyers feeling like they missed the boat. Even though rates dipped ever so slightly this past week, they are still double what they were this time last year. Rates averaged 4.99% for 30-year, fixed rate loans in the week ending in August 4, according to Freddie Mac. For a 15-year fixed mortgages, the rate isn’t much better—with a weekly average of 4.26%.

For those that feel stuck or priced out of the market, there is an interesting option. Did you know you can buy a lower mortgage rate? 

It’s true!

You can use liquid cash to purchase points that go towards your final locked-in rate which can save you a bundle of cash over the life of your loan. Here’s how it works: when buying points, 1 point lowers your mortgage rate by 0.25% and it costs 1% of your loan amount. So if the current interest rate is, say, 4% on a $500,000 loan, if you pay 1 point, or $5,000, upfront, your interest rate will be reduced to 3.75%.

Need more proof? Luckily, Realtor.com has done the math for us! If you obtain a mortgage for $500,000 on a $600,000 home at a 4% lending rate, then pay 1%, or $5,000, to lower your rate to 3.75%, you’ll pay $71.50 less per month and save over $25,000 over the loan’s life.