How to get a cheaper mortgage with rising rates

For buyers who haven’t already been priced out of the most unaffordable U.S. housing market in decades, there might be a silver lining. Lenders — all of a sudden — are competing for their business.

Borrowing costs are now all over the map, with the dispersion — the range of rates quoted by lenders relative to the median — at the widest in at least five years, according to Len Kiefer, Freddie Mac’s deputy chief economist.

Buyers are navigating a fast-changing market. In the past month alone, the average rate for a 30-year fixed mortgage has jumped almost a percentage point, to the highest since 2008.

Refinancing has dried up and purchase applications are down nearly 29% so far this year. That’s spurred some lenders to cut into their own margins by lowering rates and fees to make up lost ground.

“Rates are fluctuating at quite a rapid rate, and when there’s extreme volatility, there’s a lot more nuance,” said Taylor Marr, deputy chief economist at the brokerage Redfin Corp.

For a borrower with strong credit trying to buy a $500,000 home in Englewood, New Jersey, Bankrate’s website showed nine quotes Tuesday, according to data on a 30-year mortgage with 20% down and zero points. The lowest was 5.75% from Aurora Financial and the highest was 6.875% from Flagstar Bank. That’s a difference in the monthly payment of almost $300.

Wide net

“You won’t know the best deal unless you cast a wide net,” said Greg McBride, chief financial analyst at Bankrate.com.

Because the jump in rates has lessened demand for both refinancing and purchases, lenders are more willing to make deals, and some are more desperate than others, said Christopher Maloney, a mortgage strategist at BOK Financial Corp. Companies are especially eager to attract affluent borrowers who can still afford to buy. Jumbo mortgages for pricey homes now have much lower rates than conventional financing.

“If you’re still in the market for a house, can put 20% down, have excellent credit and are not afraid of a home-price collapse, you’re a unicorn,” Maloney said. “There are far less people in that situation, so lenders are loving you.” 

Nontraditional lenders

During the pandemic boom, mortgage brokers’ inboxes were flooded with loan applications. But slowing buyer demand has intensified competition among lenders. Some are starting to struggle, with businesses including Better.com cutting their staffs.

Companies beyond the big banks will sometimes offer even lower rates as a competitive edge.

“An independent company may offer some additional flexibility or different terms that may be better for your specific situation,” said Jeffrey McDermott, owner of Create Wealth Financial Planning in Florida.

Kyle Newell, founder of Newell Wealth Management in Orlando, Florida, is recommending that clients check out local credit unions and keep an eye out for all the additional expenses beyond the rate.

“Many people don’t stay in a home forever, so upfront closing costs matter,” he said.

Unclear future

Uncertainty about the economy and inflation means the future path for mortgage rates is unclear.

“A lot of times, a two-week period may make a huge difference,” said Selma Hepp, deputy chief economist for CoreLogic. “So I think just staying educated and keeping up with what’s happening in the mortgage rate world would be beneficial to buyers.”

And potential buyers who can still afford to purchase a home are reaping the benefits of a slowdown from the frenzied pace of 2021. Sales are sliding, and that means less competition from other buyers and lower asking prices from sellers.

“It looks like the homebuyer has a little more power now compared to six months ago,” said ​​Brittany Mollica, financial advisor at Hilltop Wealth Advisors in North Carolina. “Houses aren’t selling nearly as fast, so there might be more wiggle room when placing an offer.”