Q: I'm biting my nails watching mortgage rates rise while I'm saving for my down payment. I'm close enough that I've begun looking at houses, and I expect to be ready to buy in a couple months. What can I do to mitigate the impact of rising interest rates?
A: The good news is that since mortgage rates leveled off after surging in May and June. 30-year mortgage rates may be about 1 percent higher now, but they are still relatively low on a historical basis. Still, it's natural that you should want to pay the lowest rate possible, so here are some things you can do to at least partially offset the rise in mortgage rates:
- Consider a shorter-term mortgage. Under most circumstances, a 15-year mortgage will have a lower interest rate than a 30-year mortgage, but what's interesting about the recent environment is that this gap is getting wider. At the start of the year, 30-year rates were 70 basis points higher than 15-year rates, but by mid-August that gap was up to 96 basis points. A shorter mortgage will mean higher monthly payments; but with 15-year rates rising more slowly than 30-year rates, that shorter loan will also help you turn back the clock on rising rates.
- Be sure to get competing mortgage quotes. Mortgage lenders are all raising their rates -- but at different paces. A changing rate environment can make it especially important to shop around before you commit.
- Check your credit report before you apply. Anything less than excellent credit can cost you in the form of higher mortgage rates. So, while you are still working on that down payment, take the opportunity to check your credit score. Make sure there are no mistakes to be corrected or legitimate issues that you can fix before they cost you.
You can't control the mortgage market, so focus on the things you can control to get the best rate available when you are ready to buy.