A New Mortgage Now Costs $500 More a Month — 7 Tips Which Could Lower That

Rising housing prices make it difficult for citizens to own a house.
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According to Freddie Mac, the interest rate for a 30-year fixed mortgage has skyrocketed since last February — from 3.89% to 6.5%. This major hike has caused monthly mortgage payments to balloon, leaving borrowers with significantly less wiggle room in their budgets.

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Fortunately, there are several strategies you can try to secure a lower interest rate:

Improve Your Financial Health

Your loan offers are based, in part, on your financial health. A high debt-to-income (DTI) ratio and mediocre credit score can prevent you from securing the best possible interest rate. So, before you apply for a mortgage, try to boost your score and pay off some of your other debt.

Amass a Larger Down Payment

The more money you put down at closing, the less you have to borrow, making you a lower risk to the lender. That means the bank won’t be as concerned with collecting its money upfront in the form of high interest payments, so you may receive a lower rate.

Compare Mortgage Options

While a 30-year fixed mortgage seems like the standard way to finance a home, you have other options. You may want to consider an adjustable-rate mortgage, government-backed loan, or shorter loan term — all of which typically feature lower interest rates. For example, 15-year mortgage rates of 5.76% were available, as of this writing.

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Get Quotes From Multiple Lenders

If you ask three different lenders for a mortgage, you’ll probably get three different loan offers. So, take some time to shop around before committing to a bank. You may want to check with an online lender, a traditional bank, and a credit union to get a variety of quotes.

Take Over the Seller’s Loan

If the seller has an FHA, VA, or USDA mortgage, you may be able to take over their loan. If you do, your interest rate will be what they agreed to when they bought the home (which could be substantially less than current rates).

Buy Discount Points

You can save money on interest by buying discount points. For every 1% of your mortgage you cover, your lender will typically lower your rate by 0.25%.

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Request a Rate Buydown

If the seller is motivated to close the deal, you may be able to negotiate a rate buydown. During a rate buydown, the seller gives the lender a portion of the sale proceeds in exchange for reducing your interest rate.

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About the Author

Laura has been a freelance writer since 2018. Her work primarily focuses on managing your money, navigating your career, and running a successful business. She earned her MBA and a Bachelor's degree in Psychology during her previous career in human resources. She is also a business coach to new and aspiring freelancers and runs an online resource hub for them called Before You Go Freelance. In addition, she helps other writers get clear on their message, plan their content, and produce compelling written works.
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