3 Tips to Save on a Mortgage While Rates Are Sky-High

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Need a mortgage? These days, it’ll cost you. But read on to see how you can eke out some savings. 

There’s a reason right now is such a difficult time to buy a home: Not only are property values elevated, but mortgage rates are the highest they’ve been in years.

As of this writing, the average rate on a 30-year mortgage is 7.12%, according to Freddie Mac. Seeing as how home buyers were signing 30-year mortgages at 3% just a couple years ago, that’s a tough blow.

But that doesn’t mean you’re doomed to get stuck with a miserably high borrowing rate. Here are a few things you can do to eke out some savings on a mortgage at a time when rates are soaring.

1. Boost your credit score

The higher your credit score is, the more inclined a mortgage lender might be to write you a loan. Not only that, but a higher credit score sends the message that you’re a reliable borrower who’s likely to repay their debts. As such, your lender might perceive you as a less risky candidate and reward you in the form of some savings on your mortgage rate.

In many cases, you’re not going to be able to just magically boost your credit score overnight. Rather, you may need to spend a few months or longer working on it.

Of the various factors that go into your credit score, your payment history carries the most weight (35% of your FICO® Score). It speaks to how timely you are with bills. It can take time to establish a history of on-time payments, but make that effort, because it could do a lot for your score.

You can also give your credit score a lift by paying off existing credit card debt. The amount of revolving credit you’re using at once plays a role in calculating that number, too. And the less available credit you’re using, the better it is for your credit score.

Finally, check your credit report for errors. Correcting a mistake like a delinquent debt that was never yours to begin with could result in a nice boost — and rightfully so.

2. Shop around with different mortgage lenders

It’s common for home buyers to look at numerous properties before landing on one to purchase. Similarly, it’s a good idea to compare offers from different mortgage lenders before signing a loan agreement. You should get estimates from at least three different lenders.

You never know when one lender might have a more competitive rate to offer. And so spending some time to do that research could result in a nice amount of savings.

Of course, one thing you also want to look at is closing costs, which are the fees you’re charged to finalize a home loan. It may be that one mortgage lender is willing to give you a lower rate but charges higher fees at closing, so pay attention to all of the details when making your choice.

3. Opt for a shorter-term loan

Many home buyers seek out 30-year mortgages because they result in lower monthly payments than shorter-term loans. But if you’re willing to sign a 15-year loan, you might snag a significantly lower interest rate.

Freddie Mac says the average 15-year mortgage rate is 6.52% as of this writing. Compare that to 7.12%, and clearly, 6.52% looks more appealing. But before you commit to a 15-year loan, make sure you can afford the monthly payments. If you’re borrowing $200,000 at 7.12%, your monthly payments will be $1,346 with a 30-year loan. With a 15-year loan at 6.52%, they’ll be $1,744.

In this case, with the 30-year mortgage, you’re looking at spending a total of $284,642 on interest in the course of paying off your home. With the 15-year loan, you’re looking at $113,916. So there’s clearly a lot of savings with the 15-year loan. But you need to make sure you can afford the higher monthly payments that come with a shorter-term loan.

It can be disheartening to look at today’s mortgage rates and imagine yourself getting stuck with them. But there are also steps you can take to save money on your mortgage. And remember, too, that once rates start to fall, there’s always the option to refinance. That could leave you with a much more favorable interest rate on your home loan down the line.

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