The Housing Muse: 9 Ways to Save on Your Mortgage
Borrowing costs are surging, and dampening real estate’s spring season. Here are some ways buyers may find some relief.
By Melissa Dittmann Tracey
Mortgage rates have climbed above 7%, pressing on home buyers’ budgets and potentially adding hundreds of dollars extra per month to mortgage payments of what they were planning. The higher rates are prompting some would-be home buyers to delay their plans this spring.
However, home buyers may find some ways to save on their mortgage costs. Beyond having a stellar credit—lenders tend to offer the lowest rates to borrowers with scores above 740—home buyers may unlock additional savings, including:
1. Gather multiple quotes. The average borrower could save $84,301 over the life of their loan by shopping around for a mortgage, gathering three or more quotes from lenders, according to a study from LendingTree. Broken down further, borrowers could save $2,810 a year and $234 a month. “Different lenders have different standards and criteria that they look at when deciding who to lend to,” says Jacob Channel, LendingTree’s senior economist. “It’s for that reason that different lenders can offer such drastically different rates to the exact same people.” When shopping around, compare interest rates, terms and additional fees—not just who has the lowest mortgage rate. Also, housing experts recommend gathering quotes from various lenders, including mortgage bankers, regional banks, credit unions and national banks.
2. Ask if it’s negotiable. About 40% of home buyers say they’ve tried to negotiate the initial APR or refinance rate with a lender on their most recent home purchase. Negotiations can pay off: Those who’ve tried to negotiate on their mortgage have reported an 80% success rate, according to a separate study from LendingTree. The most common area to negotiate on: Closing costs, the fees lenders charge to process a loan. “Different lenders often have varying levels of flexibility in negotiations, but it never hurts to ask,” says Brandon Snow, executive director of Ally Home. Leverage the quotes gathered from other lenders in the negotiations.
3. Consider buying down points. Borrowers often can buy down mortgage points—typically in 0.25 increments—to reduce the interest rate on their loan, if they’re needing smaller monthly payments. For example, as Bankrate explains, a borrower with a 7% mortgage rate on a $320,000 loan may have a monthly payment of $2,129. A borrower purchasing points may get the mortgage rate to 6.5%, but it could cost them about $6,400 extra at closing. That coud lower the monthly mortgage payment to $2,022—a $107 difference. Buying down points comes with caveats: Borrowers will need to pay more upfront at closing and will want to weigh whether paying these extra fees are worth it for how long they plan to stay in the house or if intending to refinance at a later time.
4. Ask if you’re eligible for a discount. Existing customers with banks may qualify for “relationship discounts.” For example, some lenders like Chase Bank may even waive a loan processing fee if you have a minimum amount of existing money deposited or in an investment account. U.S. Bank offers up to 0.25% off the loan amount in closing costs, up to $1,000, for those who have a personal checking account with them.
5. Be aware of float-down policies. Mortgage rates can fluctuate over the course of a real estate transaction before making it to closing—like most recently when rates climbed above 7% in just one week. Many lenders tend to allow borrowers to adjust their rate downward if there are significant changes in the market rate before they make it to closing. But be proactive and ask about float-down and renegotiation policies upfront to make sure they don’t face rate-shock on closing day.
6. Re-evaluate the mortgage terms. The most commonly used type of loan are 30-year fixed-rate mortgages, but borrowers can find ones with longer terms, like 40-year mortgages. Borrowers could save around $100 on their monthly mortgage payment by extending their mortgage term. However, that does mean they’ll pay significantly more in interest over the life of the loan. Explore other types of loans to lower monthly payments, like adjustable-rate mortgages. ARMs tend to offer a lower introductory interest rate, but they will reset to current rates in five or seven years, depending on the terms. Each loan type offers pros and cons to consider.
7. Check into assumable mortgages. More home sellers are touting these in listings. Assumable mortgages are when a buyer takes over the seller’s existing mortgage instead of getting their own. For a seller who has one of those COVID-era 2% or 3% mortgage rates, home buyers could save hundreds per month—potentially $600 or more—when compared to today’s rates. Loans with a standard qualifying assumption clause include Veterans Administration, Federal Housing Administration and United States Department of Agriculture loans. Listing agents who have sellers offering these types of loans may want to market the savings to buyers.
8. Look into down payment assistance. “Many perspective home buyers may be unaware of low-down payment products that could bring homeownership closer within reach,” Jessica Lautz, deputy chief economist at the National Association of REALTORS®, testified before a congressional subcommittee on “housing and insurance” this spring. Buyers may be able to find several options through federal and state programs as well as lender-specific, low-down payment programs. Check out the Ohio Housing Finance Agency as well as the U.S. Department of Housing and Urban Development’s website for down payment assistance resources in Ohio.
9. ‘Marry the house, date the rate.’ Home buyers may want to adopt real estate’s latest mantra in proceeding with their purchase this spring. No matter their mortgage rate, they can always refinance later when rates go lower (which many housing analysts predict they will later this year). But if they hold out waiting for mortgage rates to fall before they buy, they may end up paying higher home prices because prices are not predicted to head down any time soon.
Melissa Dittmann Tracey
ABOUT ME:
Melissa Dittmann Tracey is an award-winning journalist who covers the latest real estate news and trends. You can hear her weekly on the syndicated radio show and podcast, Real Estate Today, in her housing trends segment, “Hot or Not?” She is the creator of the Styled, Staged & Sold blog and a frequent contributor to Houselogic.com and REALTOR Magazine. She’s also the host of The Housing Muse podcast at http://www.housingmuse.com. Follow her on Instagram or X @housingmuse.
