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Mortgage rates have jumped—a lot.
In Sept. 2021, eligible borrowers could lock in a 2.90% mortgage interest rate for the lifetime of their loan.
One year later, those same eligible borrowers would now be looking at an interest rate of 6.11% or more. That’s an increase of at least 3.21%.
And considering that mortgage rates moving forward are expected to remain higher than last year, well into 2023, it’s easy to see why some homeowners might not want to relocate and start a new mortgage in a new location.
Let’s look at how exactly rates affect homebuyers, homeowners, and house prices and how best to handle it.
How mortgage rates affect home prices
Mortgage rates don’t technically dictate how much a seller decides to list their home for. But the reality is that higher rates do impact the monthly mortgage payments for the buyers, which affects their house hunt.
- 3% interest on a $900 payment is $27, totaling $927 for the month
- 6.11% interest on a $900 payment is $54.99 totaling $954.99 monthly
That’s an extra $27.99 each month, which might not seem like a big jump but can add up and affect your monthly budget.
Buyers may look at lower-priced homes than they originally wanted to, in order to stay within budget. Sellers could also be more willing to come down on their asking price in order to sell, especially if they’re getting fewer and fewer offers when rates rise.
Other buyers in the market may also be scared off by higher rates, creating less competition for homes. The bottom line is if you can make it work, higher rates don’t necessarily mean that you can’t buy a home when you want to.
After all, the “right time” to buy ultimately comes down to your personal financial situation and not where the market stands.
Will rising mortgage rates affect my relocation?
With last year’s record-low interest rates, the average monthly mortgage payment for a 30-year fixed-rate mortgage hovered around $905.
Rising mortgage rates have lifted the average monthly payment to $1,230, a $325 jump.
However, since the cost of living varies by location, you don’t have to be turned off to relocation just because rates are high.
States in the south and midwest, for example, have some of the lowest average mortgage payments in the country. This could be because their cost of living is cheaper than other states, which can help to offset high-interest rates.
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Options to offset rising interest rates
When it comes to options for offsetting rising mortgage rates, there are a few suggestions from which almost every homeowner can benefit.
Mortgage rate lock
It’s important to shop around for lenders when you’re house hunting and securing a mortgage. Once you find one that offers the most affordable terms for your loan, find out if they offer mortgage rate locks.
A mortgage rate lock is the lender’s guarantee that they’ll honor the quoted interest rate for a set timeframe.
While mortgage rate locks will vary by lender, it’s common to see rates locked for 90-120 days. This allows borrowers to get the best interest rate, sometimes while they’re still house hunting, regardless of market fluctuations.
A rate lock can also make relocation more appealing for employees if they lock in at a reasonable rate before the physical move.
Once they arrive at their new location, they can begin looking at homes knowing they already have an affordable interest rate, no matter what the market might be doing.
Consolidate high-interest debts
High-interest loans such as credit cards or student loans can take a bite out of your budget—to say the least.
The more you pay in consumer debt fees, the less you have left over to spend on your monthly mortgage.
By consolidating your higher-interest consumer debt into a single, lower-interest monthly payment, you can carve out some wiggle room in your budget to accommodate higher rates on your mortgage.
Many homeowners use a cash-out refinance loan to consolidate debt.
Compromise your wish list
A home in need of a few upgrades often comes with a smaller price tag.
This can mean getting a mortgage for less than the maximum amount you qualify for and lowering monthly mortgage payments to something more manageable.
Homes outside major urban centers can also mean more houses for your mortgage dollar. Depending on your location, a short fifteen-minute commute could save you thousands of dollars on your total mortgage.
The point is that if you want to save on your monthly payment, you may have to make some sacrifices to your wish list for the house.
Pay for points
A popular benefit perk many organizations include in their relocation program is to offer loan discount points.
Loan discount points lower the mortgage interest rate by offering more money down at the start of the loan.
As a result, discount points can save homeowners thousands—or tens of thousands—of dollars over the lifetime of their mortgage.
Let’s look at an example of a $400,000 mortgage on a home with a 6.11% mortgage interest rate.
By buying two interest points for about $8,000 (each discount point costs 1% of the total loan amount), the homeowner would now be looking at an interest rate of 4.11%.
Just two points chopped tens of thousands of dollars off of a 30-year loan.
Transferees can ask for a MIDA
The Mortgage Interest Deferral Assistance (MIDA) program is another way to lower monthly mortgage payments.
With MIDA, employers pay the difference in interest amounts between the employee’s current mortgage and their new mortgage, usually for 1-3 years.
Let’s look at an example of an employee with a current mortgage interest rate of 2.9%. Let’s say the lowest interest rate they could qualify for in the new location is 6%.
With MIDA, the employer would pay a 3.1% difference for 1-3 years, putting a little more money back in their employee’s pockets.
While it’s not a permanent reduction, MIDA lowers an employee’s monthly payment for their first years in the new location, alleviating some of the stresses associated with relocating.
Be sure to check with your employer to see if they offer this or any other type of assistance to offset interest.
Look for states offering relocation incentives
If you’re already a remote employee, some states will pay you to move to and work remotely in their state, as a way to attract more people.
This works because remote workers aren’t location-dependent, they can live wherever they choose.
These states offer benefits such as:
- Free babysitting services
- Membership in the local YMCA
- Gift cards to local shops, stores, or seasonal markets
- Free use of co-working facilities
- Reimbursement of moving expenses
- Cash payments, some upwards of $10,000, to help offset the cost of moving
Some of these incentives are only offered if you work for a business that’s based in the state. So if you’re looking to stay with your current organization and relocate, make sure you read the requirements thoroughly.
A mortgage calculator can help
If you’re considering relocation, a mortgage calculator could be your new best friend.
Simply input the home price, interest rate, and the loan term you want and let the calculator do the math.
By trying different loan scenarios, such as higher down payment, lower interest rates, longer terms, etc., you can get a good idea of what scenario would best meet your needs.
Perhaps you’re looking at two different locations with different home prices and available rates. The calculator will allow you to compare the monthly payments of those two locations.
Get started by reaching out to Homefinity
If you’re an employee considering relocation—Homefinity is here to help.
Reach out to the licensed loan officers at Homefinity and we’ll discuss what you might be eligible for and what programs are available to help you.
We’ll happily answer all your questions and go through the different options that suit your particular situation.
Buying a home in a new location can feel overwhelming, but with Homefinity you aren’t doing it alone. Our experienced and passionate team is here to help you every step of the way.
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