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How to beat high mortgage interest rates

by SuperiorInvest

It’s been tough enough for homebuyers when the coronavirus pandemic made it difficult to find affordable homes. Now with mortgage rates with 30-year fixed-rate loans climbing more than 6 percent in September from a low of around 2.6 percent in early 2021, those homes are also much more difficult to supply.

While 30-year fixed-rate mortgages are the norm, 15-year fixed-rate loans have lower rates (although monthly payments are higher). A recent study of the online lending market LendingTree examined 381,000 loans offered to its users from July to August to compare the benefits and costs of 15-year loans in all 50 states.

In expensive California, the average loan offered came in at $457,965 with a rate of about 5.9 percent with a 30-year loan or about 4.9 percent with a 15-year loan — a savings of $328,064 in interest over the life of the loan. Even in West Virginia, where homeowners benefit the least from 15-year loans, the average $218,480 loan came in at about 6.3 percent over 30 years or about 5.4 percent over 15 years, saving $168,946.

Since 15-year loans carry higher individual payments, that explains why fewer than 10 percent of applicants opt for them, according to LendingTree. However, you can still take advantage of the lower rates by downsizing your purchase to make the 15-year loan affordable – keeping you in the game and building equity.

If you have the cash, you can also make additional mortgage payments, whatever the term. By taking a bite out of what you owe, you end up paying off the loan sooner. (Just make sure your loan doesn’t have a prepayment penalty. Most don’t.)

Finally, remember that you are never really locked into an interest rate. When rates drop, count. Your dream home may be within reach, or it may make sense to refinance your current home for a lower rate or for a shorter term.

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