Concerned About Rising Interest Rates? How Homebuyers Can Save On a Home Purchase

Mortgage interest rates have risen sharply in the past few months. At the beginning of 2022, a 30-year fixed rate mortgage was an average of 3.22% and now it has gone above 6.5%. Although this is still historically low compared to 1981 when the average interest rate of a 30-year mortgage reached an all-time high of 18.63%, it has a considerable impact on monthly expenses for first-time homebuyers and borrowers with adjustable-rate mortgages.

Furthermore, with inflation still high, it is unclear when mortgage rates will begin to fall. If you are worried that rising mortgage interest rates will make it difficult to purchase a home or afford your monthly mortgage payments, here are some strategies to beat the market and make it work for you.

1. Make A Larger Down Payment

Rising interest rates can result in a higher monthly payment than what you would prefer to pay. However, a bigger down payment will increase your chances of getting a lower interest rate as this means you are a less risky borrower.

You will have more equity in your home from the start and if you can afford to put down 20% it will eliminate the need for Private Mortgage Insurance. So, a higher down payment means lower monthly payments over the life of the loan.

Furthermore, you can save about $200 to $400 on appraisal costs, as many lenders offer appraisal waivers when you put down at least 10%.

2. Purchase Discount Points.

Discount points are fees you pay upfront to lower the interest rate on your home loan. Buying a point costs 1% of the loan amount and reduces your interest rate by 1/4th % point, but this varies by lender. However, keep in mind that discount points will raise your closing costs.

Furthermore, most lenders will limit the number of points you can purchase, and you may also be given the option to purchase smaller increments than a full point. This is a good option if you intend to stay in the house for a long time. Consider how much it will cost and how long it will take to break even through monthly payment savings.

3. Select an ARM (Adjustable-Rate Mortgage)

Another option to counterbalance the cost of a higher mortgage rate is to go with an adjustable-rate mortgage rather than a fixed-rate loan.

Many lenders provide ARM loans with introductory interest rates that are fixed for a set period and then your rate will be reset every year thereafter based on the market rates. There are several types of adjustable-rate mortgages including 3/1, 5/1, and 10/1. The interest rates of these loans are generally lower than fixed-rate home loans. For example, as of September 15, a 5/1 ARM had an average interest rate of 4.93% compared to an average rate of 6.02% for a 30-year fixed-rate mortgage.

However, if you choose to go for this option, you should plan to refinance your home loan before the fixed period expires, especially if interest rates have fallen by then. Otherwise, your costs may increase.

4. Lock-In Your Interest Rate

In an economic environment where interest rates are rising and show no signs of abating, the sooner you lock in your interest rate the better. Lenders will usually allow you to lock in a rate for 30 to 60 days without charging you a fee. However, make sure to ask your lender how much, if any, a rate lock will cost you.

Also, find out if they have a “float down” option, which allows you to get a lower rate than you locked in if interest rates fall before you close on your home.

Although interest rates are higher today you can secure value for years to come by locking in your mortgage rate now. This is because purchasing a home generally provides a better ROI (return on investment) than renting. Your monthly mortgage payments will not change throughout the loan period, unlike rent payments which will go higher year after year.

5. Review Your Credit Report & Improve Your Score

The higher your credit score, the lower will be your mortgage interest rate. So, how can you enhance your score?

You can get a free copy of your credit report from all three credit agencies once a year. Examine them to see if any mistakes need to be corrected.

Also, pay your bills on time each month and if possible, pay off any outstanding balances to improve your credit score. Further, it is a good idea to familiarize yourself with the five factors used to calculate your score.


Mortgage rates are rising and are unlikely to change soon, so prospective home buyers must adapt their strategies to the new interest rate market rather than give up. Fortunately, you have several options (like the ones mentioned above) to make your payments as manageable as possible and save money.

Saving even a fraction of a percent on your mortgage interest rate will result in significant savings. Therefore, any extra effort you make to obtain a lower interest rate should be worth it.

If you are planning to purchase a home and take advantage of our various mortgage loan programs, now is the time to take action and apply for a home loan. Call a Ratebeat Mortgage expert to get started today.