In this blog, I will give you the golden keys on how to Lower your Mortgage Payment, Teaching You to Use Your Money Wisely.

When you’re searching for a new home, naturally, you want the best deal possible. That’s why it’s essential to consider the interest rate when taking out a mortgage, as it can significantly lower your monthly payment. The good news? You can get the home of your dreams while getting the lowest interest rate possible. Want to know how? I’ve got the inside scoop!

Powerful affects of Credit & Interest Rates to Lower Payment

Before getting into the biggest way to reduce your mortgage payment, every little bit helps, so you want to address these first.  Reading this may not be fun, but it’s worth it in the end! You may find one lender who has an incredibly low-interest rate, while another has a higher rate. Even a fraction of the difference can add up to hundreds and even thousands of dollars over the life of your loan. Below I’m going to show you just impactful this is! It’s HUGE and worth it!

Another way is improving your credit score. Your credit score plays a big role in determining what interest rate lenders will offer you. It can also affect your mortgage insurance if you not putting 20% down. Some lenders are great at advise for a quick minor fix to help with this.

After seeing the best interest rates you have seen in your lifetime, Interest rates are higher than you would like, it even has some people feeling priced out of the market to buy their home. I get it but, believe it or not, they are still really great. Those were the lowest interest rates since before 1970, they were great historic rates! The good news is, you are not stuck with these interest rates, you can buy it down.

 

Seller Can Help You Buy Your Interest Rate Down

Not only can you buy down the interest rate on your mortgage, but even better, we can try to negotiate with the seller to buy it down for you. I’ll get into that below but first, let’s look at the difference it will make in your payment. A year ago, the seller wound not have helped with this because negotiations were nonexistent, due to multiple offers and insane bidding wars! That’s why important to know the market to know what your best options are. Well, lucky for you, the tables have turned. Under the right circumstances, it is now possible.

A lower interest rate would not only lower your monthly payment, but it will also save you thousands of dollars over the life of your loan. Here is where I’m going to discuss how to make this happen with different strategies you can use this depending on your desired outcome. This allows you to either buy a more expensive home and/or lower your payment. So, let’s get into the different ways you can use this.

This Has a Huge Effect to Lower Mortgage Payment

In this first example,

we are only looking at is, a home purchase price of $705,000 with a $25,000 down payment, leaving a financed mortgage balance for the amount of $680,000.

This is we are an example using 6.38%, your may be different depending on lender and when you read this blog.

As you can see your payment would be $4,245 a month for 30 years.

 

Now in this second example,

everything is the same except the interest rate is 1% lower. So now, we calculate 5.38% instead of 6.38%.

As you will see it changes the mortgage payment from $4,245 to $3810 a month for 30 years. That is savings of $435.00 a month. Not only is your mortgage payment less per month, but over the 30 years of the mortgage… that is a whopping $156,000 in savings! No bad, right? Hmmm, think about what you can do with all that money.

 

Buying down your interest rate is a great way to save money and guaranteed to be smart with your money. So if you’re looking for ways to save when buying a home, this here is one of the best other than NOT overpaying for your home purchase.

You can buy it down by 1/4%, 1/2&, or 1%, whatever you can afford or negotiate. The following real-life story will show you just one experience with the way this was applied with seller participation in buying down interest rates.

Important – Other Factors Which Effect Monthly Payment

Interest rate varies with many scenarios and interest rates also vary depending on when you are reading this. This is simply an example using 6.38%.

FYI side note; we are focusing on just the mortgage payment amount, the mortgage payment does not include any of the following that might exist… property taxes, special assessments, HOAs, homeowners insurance, or PMI (property mortgage insurance). We’ll break these down in a separate blog or video.

Here’s How You Could Use It to Buy a More Expensive Home

Another way to use this to your advantage, if you want a home which cost a little more than your budget. This could also be the strategy to get it, Here is how. Lender’s tell you what price of home you can afford based on monthly payment. If you buy down the interest rate, it allows for buying a bit more expensive house with the same payment. As in the example a mortgage payment for a $680,000 loan at 6.38% interest is 4,245 but at 5.38% it is $3,810.

Should you not want to save on the monthly payment, you could purchase more home by the $435. per month. A $750,000 mortgage at 5.38% interest, the payment would be $4,202, still less than the $4,245. That’s for a $70,000 dollar increase in price range. Some food for though. Every thing is about using the best strategy for to get you the results best for you. 

Real Life Story – Another Strategy to Lower Mortgage Payment

This buyer was moving from California to Colorado, bought this charming newer home build in 2019, 3 bed, 2 bath home.

They were out to buy their very first home using their VA bill. They were getting frustrated because this was the first half of 2022, homes were all overpriced and selling for much more than the list price. Out of frustration, not finding what they wanted for a price they were willing to pay, they tabled it for a few months. Something many buyers experience, maybe even you.

As the interest rates were going up and home prices stabilizing a bit, they realized they had to get in before they lost the opportunity for these amazing low rates, so they decided to look again.

Well Jackpot, they found one, A 3 bedroom, 2 bath, newer home with open floor plan, everything with reasonable bare minimum needs and wants, in a price range they were comfortable. The home was listed for $490,000.

Here is the thing, They also wanted to avoid closing costs if possible, their offer was a fair price of $495,000 due to the fact there was another offer, and they were also asking the seller to pay closing costs and fees up to $10,000. BTW, at $495,000, it still appraised for over $500,000.

 

How This Lowered Their Monthly Payment & How it Played Out

You might ask what this has to do with getting a lower interest rate, so let’s get into that. Closing costs were about $7,000, leaving $3,000 unspent monies. You lose what you don’t use so ha, the lender applied it to buying their interest rate down by 1/4 percent. They were locked in at a 4.75% interest rate, with the $3,000 they were able to buy down their interest rate to 4.5%.

Every little bit helps, while it only brought her payment down by 74 dollars a month, you might be surprised to know that is $26,640 over the lifetime of the loan. Not bad for no out-of-pocket money to purchase the home.

Final results, They bought their home with 0 closing cost, 0 down, and got sellers also to pay for the interest buy-down of 1/4%. That’s how creativity in negotiation action is done, as they have said… they are not mad about it! If they would have paid the difference to buy it down by 1%, they would have saved $290 a month equally $104,400 over the 30 years. I tell you that to show the impact but they did what they were comfortable with.

They were more than happy with exactly how this worked out. They could have bought the rate down more, but in their situation, they choose not to, because they didn’t want to empty their bank account. The point of this story is to share a real-life circumstance on how to get results that suited their needs best, using a little creativity and ingenuity.

Interest Rate Packs a Powerful Punch

In summary, I did this chart to show you the powerful effect depending on rate you get and buy-down the interest rate. Using a random $700,000 loan. It varies depending on your home loan price. I did not add in Mortgage Insurance because I don’t know your circumstances or even if you will have it. 20% down allows you to avoid it. As you can see, this is why I believe this is the most valuable consideration. especially if you can get seller to pay at least a part of it, keep reading for how and strategy for this. Imagine the difference over the lifetime of the loan between 7% and 5 1/2 percent is a whooping $245,000. THAT, makes it worth discussing. Even better, if you can get seller to pay at least a part of it, keep reading for how, what, and strategy for this.

(I’ll share their plan to become multi-millionaires using their VA, but that’s a story for another day.)   🙂

 

Strategy is to use it in different ways to get maximum benefits

Now, I am not trying to sell some hype, I am giving the reality of what is possible. If you have the cash, an option is to put less down and buy down your interest rate, it’s a good way to save money in the monthly payment and additionally in the total amount of the loan.

However, I also want you to know this, please understand while you can buy it down, so can the seller. This doesn’t mean every seller will buy your interest rate for you by a full 1%, most won’t. It depends on negotiations and circumstances, but it is easily conceivable to get a seller to buy it down by 1/4 or 1/2 percent. It does make a difference in your monthly payment! Also, another possibility is for you and the seller both to contribute to buying it down.

You see ultimately, we are here to guide you in what is possible to help you with your needs, which can vary depending on your situational circumstances. It is about knowing everything possible so, YOU make the best choices to help you.

IMPORTANT to know, not all buy-downs are permanent either! That’s another topic for another blog, but you want to be sure you are not getting a temporary one. Temporary ones are for a few years, make certain you are getting the type of buy-down you want. The example I gave you, and most often the best choice is for the life of the loan, unless you are only going to be living in that home for a few years. Always discuss your circumstances with your lender so you can make the best choice for you.

There are other ways to get the best monthly payment, which I will discuss those details in other blogs and videos, FICOS is another that can affect you, as mortgage insurance and property taxes can carry quite large special assessments to name a few.

Interest Rates Make a Big Difference

I wrote a blog about 3 years ago showing you the difference it can make. In that blog I show the impact it has on your mortgage amount. I let you know the government is more comfortable with interest rates around 7%. The reason I stated was because they use interest rates to control inflation. When rates were amazingly low and unprecedented, I warned you they would be back here. If you would like to read it, here is the link Should I Buy Now or Wait Until the Prices Drop?

Interest rates also affect the home price amount when qualifying for a mortgage. For example, if you are looking to purchase a $300,000 home and interest rates are 4%, then you will need about $21,000 of income to qualify for the loan. If those same interest rates rise to 5%, then you now need $.

If any of this Confused You, or Have Questions, Simple Ask

We don’t care if you are buying soon or in a few years, we are here to help you. If you have questions, you can feel free to call to ask without pressure. Set yourself up the best way to achieve your goals. We not only know the love of owning your own home, but we also completely understand this is one of your biggest, and one of the best investments for life.

Buying smart gets you further faster because you are not just buying your home, you are also investing in your future!

~Dianne Hicks

My quote for the day…

If there is a will,

there is a way,

even if it’s not today! 🙂

~ Dianne Hicks

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