There has been a lot of talk in the news lately about the forecast of more interest rates and how inflation is impacting our economy. It is OK if you don’t understand what all this means. We’re here to make sense of it and explain how you can take control by understanding what this means to local real estate and qualifying for the best mortgage rates available. Even if you are not actively looking for a better rate today it could open up the possibility of refinancing at a lower rate in the future.
Inflation is an overall increase in the prices of goods or services in an economy. Over time, currency loses value and it doesn’t have as much purchasing power as it once did. In other words, whatever a dollar can buy is reduced over time. Inflation can occur for a variety of reasons, like higher wages, lower interest rates, supply chain issues, or broader issues in the global economy.
The Federal Reserve uses monetary policy to achieve its target rate of 2% inflation. In 2022 in the wake of the COVID-19 pandemic where we had historic low-interest rates and supply chain issues, inflation reached 8.5%, its highest rate since 1982.
What it means for Charlotte real estate:
High inflation means we are spending more money to buy basics like gas and food, which means we all have less disposable income. Because household budgets are affected, some home buyers will be nervous about taking on new or bigger mortgages and may delay buying their first home or upgrading to a bigger one. And because the primary tool used to control inflation is interest rates, homebuyers will qualify for smaller mortgages than they did before and will have higher mortgage payments too.
Interest Rates 101
An interest rate is the cost of borrowing money. A borrower pays interest for the ability to spend money now, rather than wait until they've saved up the same amount. Interest rates are expressed as an annual percentage of the total amount borrowed, also known as the principle.
What does it mean if you are buying in Charlotte?
The average home price in Charlotte is about $460,000. Obviously, real estate prices will differ significantly from neighborhood to neighborhood. For simplicity's sake, let's assume you want to buy a house that costs $500,000, and you have $100,000 for your down payment. At 20%, $100,000 should mean you don't need to pay private mortgage insurance (PMI).
Let’s compare a 5.0% versus a 6.0% fixed interest rate on $400,000 over a 30-year term.
Mortgage Rate (30-year fixed)
Monthly Payment on $400,000 Loan (excludes taxes, insurance, etc.)
Difference in Monthly Payment
Total Interest Over 30 Years
Difference in Interest
With a 5% rate, your monthly payments would be about $2,147. At 6%, those payments would jump to $2,398, or around $251 more. That adds up to a difference of almost $92,600 over the lifetime of the loan. In other words, shaving off just one percentage point on your mortgage could put nearly $100K in your pocket over time.
So, how can you improve your chances of securing a low mortgage rate? Try these eight strategies:
8 Strategies to Secure a Lower Mortgage Rate
1. Raise your credit score.
Borrowers with higher credit scores are viewed as “less risky” to lenders, so they are offered lower interest rates. If your credit score is low, take steps to improve it, like paying down revolving debt and making all future payments on time.
2. Keep steady employment.
When you apply for a mortgage, lenders will review your employment and income over the past two years. If you’ve earned a steady paycheck, you could qualify for a better interest rate. A stable employment history gives lenders more confidence in your ability to repay the loan.
3. Lower your debt-to-income ratios.
Even with a high credit score and great job, lenders will be concerned if your debt payments are consuming too much of your income. If your ratios are too high, you can take steps to lower them, like purchasing a less expensive home or paying down credit cards and auto loans.
4. Increase your down payment.
Why do lenders care about down payment size? Because borrowers with significant equity in their homes are less likely to default on their mortgages. That’s why conventional lenders often require borrowers to purchase private mortgage insurance (PMI) if they put down less than 20%.
5. Compare loan types.
Not all mortgages are created equal. With a fixed-rate mortgage, you’re guaranteed to keep the same interest rate for the entire life of the loan. Adjustable-rate mortgages have a lower introductory rate, but it can rise after a set period of time — typically 3 to 10 years.
6. Shorten your mortgage term.
A mortgage term is the length of time your mortgage agreement is in effect. The majority of homebuyers choose 30-year terms, but if your goal is to minimize interest, crunch the numbers on a 15- or 20-year term. Each monthly payment will be higher since you’ll be making fewer payments, but you’ll save money over the long term.
7. Get quotes from multiple lenders.
When shopping for a mortgage, be sure to solicit quotes from several different lenders or brokers to compare the interest rates and fees. And don’t forget that we can be a valuable resource during the process. After a consultation, we can connect you with loan officers or brokers best suited for your situation.
8. Consider mortgage points.
Even if you score a great rate, you can lower it even further by paying for points. When you buy mortgage points, you pay your lender a fee in exchange for a lower interest rate. You’ll need upfront cash to pay for the points, but you can more than make up for the cost in interest savings over time.
If you’re ready and able to buy a home, don’t let mortgage rate uncertainty sideline your plans. You can always refinance if rates go down, but you can’t make up for lost years of equity growth and appreciation. If you have questions or would like more information about buying or selling a home, reach out to schedule a free consultation. I’d love to help you navigate this shifting market and reach your real estate goals!