How Boston Homebuyers Can Save Money Despite Rising Mortgage Rates
Home buyers in Boston have not had an easy time over the past two years amid historic competition for homes. Years of tight inventory led to price increases and bidding wars in the City of Firsts. Now, as mortgage interest rates have begun to rise quickly, Bostonians are looking for ways to save as they search for their dream homes.
Despite record home prices and increasing borrowing costs, there are ways to conserve funds when buying a home. That’s why the team at Prevu Real Estate put together a quick guide on how to offset higher mortgage payments.
Consider an adjustable-rate mortgage
Depending on your home ownership goals in Boston, you may want to use an adjustable-rate mortgage rather than the commonly quoted 30-year, fixed-rate mortgage to achieve a lower monthly mortgage payment.
Many folks planning to live in a home for ten years or more, or purchasing a long-term investment property, pursue a 30-year, fixed-rate mortgage. These loans can be conforming or non-conforming, depending on your credit and the price of the home. And while they offer certainty of payment for the life of the loan, 30-year, fixed-rate mortgages typically have a higher interest rate than other adjustable-rate products.
These adjustable loans have a fixed interest rate for a set number of years, ranging from 3 years to 10 years depending on the loan, but then the interest rate begins to float after that fixed period based on defined calculations.
So, how do you know this option is for you? If you are looking to buy a condo or a starter home that you only plan to live in for five to 10 years before moving to the suburbs or upgrading to a larger place, your best bet may actually be an adjustable-rate mortgage.
The benefit is a lower monthly mortgage payment during the fixed period, as adjustable-rate mortgages have a lower initial interest rate; however, they are riskier—rates may be higher in the future if you own the property longer than the fixed period.
Get a commission rebate from your real estate agent
Hiring the right agent to guide you through the home buying process is one of the best ways to save money.
Buyers should speak with multiple agents to understand their experience in the Boston area and whether they offer commission rebates. These tools allow real estate brokers to give buyers a portion of their commission after closing.
Prevu Real Estate provides the largest commission rebate in Boston, offering up to 2 percent of the purchase price back to buyers. These savings can go a long way to make your home purchase more affordable.
For example, if you purchase a $1.5 million condo in Back Bay with Prevu, you could receive a rebate of up to $30,000.
Don’t sleep on an offer
Some homebuyers are putting their searches on hold as mortgage rates and home prices rise, but savvy buyers can use this to their advantage as the wild competition of recent years begins to subside.
Your agent can help you source a shortlist of homes that fit your needs so that you can make a quick offer when your ideal home in Lexington or Newton hits the market. There is still a shortage of homes for sale in the Boston area, and you may want to avoid moving too slowly—you could end up in an unnecessary bidding war.
By swiftly placing a bid and negotiating quickly, you can get the house under agreement as soon as possible. To do this, you should have all your paperwork in order and ensure that you are pre-approved for a loan.
Consider mortgage points to achieve a better rate
One way to reduce the cost of your mortgage is by using mortgage points. Commonly known as “buying down the rate,” it involves a buyer paying upfront interest at closing in order to lower their mortgage rate.
Essentially, each point is worth one percent of the loan amount, so a point on a $1.2 million dollar mortgage equals $12,000. Each point you buy can lower your mortgage rate by approximately 0.25 percent, but this number depends on the interest rate environment, and the lender you work with.
While paying points does add to a buyer’s out-of-pocket closing costs, the resulting lower mortgage rate can potentially save a homeowner a multiple of that upfront cost over the life of the loan.
Hire an experienced agent
Buying a home in the Boston real estate market is no walk in the park, so you want an expert to ensure you do not overpay for a home.
Agents well versed in negotiation and pricing analysis can help you discern the true value of a property, then craft a strategy to meet your goals.
Make sure to interview several agents, asking them about what areas of the city they usually sell in and how many deals they have under their belt.
This is a paid partnership between Prevu and Boston Magazine's City/Studio