The next most important issue for home buyer, after the buying price of a home, is often their mortgage rates, or the interest rates they’ll pay on their mortgages. The interest rate has a significant impact on how much you’ll pay back throughout the life of the loan. For example, the difference between 3.75 percent and 4.0 percent over the life of a 30-year fixed-rate loan works out to around $5,000 more for every $100,000 borrowed. That’s a significant distinction. It pays, then – literally – to know about mortgage rates and how to secure the best rates. So, let’s take a look at what Washington DC home buyers should know about mortgage rates.
Current Mortgage Rates and the Outlook
Near the end of January of this year (2022), mortgage rates were still near historic lows. “[T]he average rate for the benchmark 30-year fixed mortgage [was] 3.59%. If you’re looking to refinance your current loan, the average fixed refinance rate [was] 3.58%. . . . Meanwhile, the national average 15-year refinance rate [was] 2.90%.”
But will these low rates last?
“Mortgage rates are expected to climb in 2022, according to most experts. While interest rates were hovering around 3% for much of 2021, they should be closer to 3.5 percent – and potentially higher – by the end of the year. While it is still low by historical standards, the record-breaking days are likely behind us now, and the trend is likely to go increasing.”
To find out more about mortgage-rates trends in Washington DC, contact a local agent at (786) 505-7260.
Factors That Determine Your Mortgage Rate
But what, you may be wondering, actually goes into determining the rate you’ll bet on a mortgage? The main determining factors for individual mortgage rates are . . .
- Your credit score
- The amount you pay down
- Property location
- Amount of the mortgage loan and closing costs
- Type of loan
- Loan term
- Type of interest rate
Important Mortgage-Rate Considerations
That, then, brings us to two important considerations concerning mortgage rates . . .
Fixed Rate vs. Adjustable Rate
You can receive a fixed-rate mortgage or an adjustable-rate mortgage. “Mortgages have either fixed or adjustable interest rates. Fixed-rate mortgages guarantee you’ll pay the same interest rate for the duration of the loan. While insurance, property taxes, and other costs may fluctuate, the portion of your mortgage payment that goes toward principal and interest is constant during the loan period.”
On the other hand, the interest rate on an adjustable-rate mortgage (ARM) can fluctuate over time. “An ARM normally starts with a 10-, seven-, five-, or three-year (or even one-year) introduction period during which your interest rate remains constant. After that, the rate may fluctuate on a regular basis. In most cases, ARMs have lower introductory rates. However, after the promotional term ends, your ARM rate may climb, causing your monthly mortgage payments to rise – significantly in some situations.”
There’s also the matter of discount points. These “are fees borrowers pay to reduce the interest rate on their mortgages. One point is 1% of the loan amount, which typically reduces the mortgage rate by 0.25%, although the reduction can vary. If you take out a loan at 4.5% interest, you might be able to pay a $2,000 fee to reduce the rate to 4.25%.”
However, keep in mind that purchasing discount points often entails paying “thousands of dollars up front in order to save a few dollars each month.” The monthly savings take several years to accumulate to the point where they exceed the initial payment. The length of time it takes to break even varies based on the loan size, the cost of points, and the interest rate. It’s usually between seven and nine years. It’s a smart idea to forgo the discount points if you don’t plan on keeping the loan for that long.”
Ways to Get Better Mortgage Rates
When it comes to what homebuyers in Washington DC need to know about mortgage rates, an important part of that is knowing what they can do to get better rates. Some solid steps you can take are . . .
Improving Your Credit Score
If your credit score is below 760, you should do everything you can to improve it, such as paying off credit card debt and making all payments on time.
Paying More Down
“A lender views a borrower who makes a small down payment on a home as a higher-risk borrower than someone who makes a greater down payment.” That’s why, if you put down less than 20% on a home, you’ll be required to pay for private mortgage insurance. “[E]ven if you can’t put down 20%, a greater down payment will save you money on PMI.” Furthermore, a bigger down payment can result in a reduced interest rate.”
Getting a Shorter-term Loan
A shorter-term loan – instance, a 15-year mortgage rather than a 30-year mortgage – will often earn you better mortgage rates, despite the fact that you’ll pay more monthly. “For example, the 30-year rate was 2.87 percent in mid-September 2020, and the 15-year rate was 2.35 percent.”
Increasing Your Income
The more money you make, the lower the risk you pose to a lender. The biggest benefit is that your monthly mortgage payment will be a smaller percentage of your monthly income. The debt-to-income ratio (DTI) is a significant component in determining your interest rate.
Decreasing Your Debt
Similarly, decreasing your debt can help you get a better rate because it will also improve your DTI. And, besides, it’s usually much easier to decrease debt than to increase your income – and it will improve your credit score as well.
Shop Around for the Best Rates
If you’re a Washington DC home buyer, you should also know this about getting the best mortgage rates: all the experts agree that you should shop around for the best rates. Here’s what they say . . .
“One of [the] most important pieces of advise for any mortgage applicant is to shop around for quotations from multiple lenders. When shopping for a loan, it’s crucial to consider not only the interest rate but also the loan’s other stipulations. There is always some variation in rates and conditions between lenders, so make sure you understand the entire picture of each offer and consider what will work best for you.”
Talk to a Washington DC Agent
And your Washington DC can assist you in gaining a complete view of the local market. Despite the fact that your agent is not a loan officer or financial expert, he or she can assist you in this area. So, if you’re a Washington DC home buyer concerned about mortgage rates, call us at (786) 505-7260 right away.