Homebuyers are still feeling the sting of elevated prices and higher interest rates. This is happening despite the signs that housing market is cooling.
For example, the average rate on a 30-year fixed-rate mortgage is 6.7% as of Friday, up from 3.3% at the start of 2022, according to Mortgage News Daily. Alongside that, home prices — the median is $435,000 — are up 13.1% on average from a year ago, according to Realtor.com.
“I think the major problem is payment shock,” Stephen Rinaldi, president and founder of Rinaldi Group, a mortgage broker based near Philadelphia was quoted by CNBC as saying.
“When I sit down with clients and the rate is in the 6s, their payment is outrageous sometimes,” he added.
The truth is that the difference that interest rates can make can be significant. For illustration: On a $300,000 mortgage at 6.5% over 30 years, monthly payments for principal and interest only would be $1,896.
That same loan at 3% would result in a payment of $1,264 (a savings of $632). Other charges such as property taxes or mortgage insurance would be on top of those amounts.
Yet there are ways to reduce the cost of buying a house. While there’s no one-size-fits-all approach, you can evaluate various options available to you and consider whether any of them make sense for your situation.
aAshorter loan with a more favorable rate may be appealing although the typical mortgage is for 30 years. The average rate for a 15-year loan is 6% as of Friday, according to Mortgage News Daily. Additionally, you save a boatload in interest over the life of the loan and you build equity in the house faster.
Here is an example: A 30-year, $300,000 mortgage with a fixed 6.5% rate would mean paying $382,786 in interest over the life of the loan. In comparison, a 15-year mortgage, even at the same rate, would translate into paying $170,438 in interest during the loan.
Expersts advise that whateve your situation, make sure that you pick a mortgage that you will ultimately be comfortable to deal with.
