Unlock Savings on Your Mortgage: 6 Strategies for Home Buyers and Sellers
Heith Mohler
Wednesday, August 30, 2023
In a market where rates are hovering around 7%, both potential home buyers and sellers are feeling the financial pressure. However, there's good news on the horizon: here are six insider tips to help ensure that you secure the best possible deal for your mortgage.
Comparison Shopping Yields Rewards
Gone are the days of settling for the first offer that comes your way. Current data suggests that shopping around for mortgage quotes can yield substantial savings. According to a recent LendingTree study, the average borrower could potentially save a staggering $84,301 over the life of their loan by obtaining quotes from multiple lenders. This translates to savings of approximately $2,810 per year and $234 per month.
Remember, diversity in lending standards and criteria can lead to significant disparities in offered rates. Brandon Snow, Executive Director of Ally Home, advises that while comparing rates is crucial, evaluating terms and additional fees should not be overlooked. Ensure a comprehensive search by soliciting quotes from various sources including mortgage bankers, regional banks, credit unions, and national banks.
The Power of Negotiation
While many home buyers haggle over property prices, fewer attempt to negotiate their initial APR or refinance rate. Surprisingly, those who do negotiate on their mortgage have an 80% success rate, according to a separate LendingTree study. Furthermore, negotiating on closing costs, the fees associated with loan processing, can also prove fruitful.
Smart Use of Mortgage Points
Consider the benefits of purchasing mortgage points to lower your loan's interest rate. This strategy involves an upfront payment at closing to reduce the interest paid over the life of the mortgage. Although it requires an initial investment, the savings over time can be substantial.
For instance, if a borrower with a 7% mortgage rate on a $320,000 loan purchases points to lower the rate to 6.5%, they might pay $6,400 upfront and save $107 on their monthly payment. While experts caution that recouping these savings can take time, lenders can assist in calculating the break-even point.
Leverage Existing Relationships
If you're an existing customer with a lender, inquire about potential "relationship discounts." Some financial institutions, such as Chase Bank, offer fee waivers or reductions for clients with a certain level of existing deposits or investments. U.S. Bank extends a closing cost reduction of up to 0.25% for those maintaining a personal checking account.
Navigate Rate Fluctuations
Mortgage rates can shift during the closing process, making timing crucial. Some lenders provide the option to adjust the rate downward in response to market changes, a strategy known as "float-down." By discussing these policies upfront, you can secure rate protection and avoid potentially paying a higher rate than necessary.
Tailoring Mortgage Terms
While the 30-year fixed-rate mortgage remains popular, consider exploring alternative term options. Some lenders offer extended terms, such as 40-year mortgages, which could lower monthly payments. However, be aware that this might result in higher overall interest payments over the loan's lifetime.
With an array of mortgage types available, including adjustable-rate mortgages (ARMs), which offer lower initial rates, borrowers have flexibility to find the right fit. ARMs have gained traction, representing nearly 19% of single-family mortgages. While they reset to current rates after an initial period, they can be a wise choice given the right circumstances.
Ultimately, remember the adage: "Marry the house; date the rate." In today's dynamic market, prioritizing a home you love for the long term remains a wise approach. Even as rates fluctuate, your commitment to the right property will pay dividends, allowing you to take advantage of favorable rates through refinancing.
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