Ways to Find the Most Affordable Mortgage Rate
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This is a special edition of Your Money Briefing for Friday, April 14th. I'm J.R. Whelan for The Wall Street Journal. Welcome to the third episode of our series, Under Contract, Your Guide to Home Buying. So far in our series, we've helped clear up some of the confusion that often accompanies the process of buying a home, from knowing how much home you can actually afford
One of the biggest challenges for people when it comes to homeownership is that they've kind of been taught that it's only about the mortgage payment and that equals affordability when nothing could be further from the truth.
To understanding the current housing market.
Mortgage rates doubled over the course of 2022, bringing the typical mortgage payment on a home purchase 45% higher than it was just a year ago. Payments are now double what they were in 2020.
On this episode, we're taking a closer look at those mortgage rates, which can pave the way toward moving into a new home or price buyers out.
So hopefully they come back down for people, yeah. We have two kids that eventually will need to buy houses and I just don't see with the current rates like how that's ever going to happen.
So where do you begin the search for an attractive rate?
When you are getting a mortgage, you're definitely not committed to that national average. A lot of bank websites will allow you to browse the different types of mortgages that are offered and the rates that they're offering. And real estate agents will often offer referrals to local lenders too.
My guest is Holden Lewis. He's a senior writer at NerdWallet who focuses on mortgages and home buying. Hey, Holden, thank you for joining us. Hey, thank you. So first of all, Holden, help us with the basics here. What are the different kinds of mortgages out there and what kind of an agreement does the borrower sign?
There are two main types of mortgages. There's the fixed rate mortgage and then adjustable rate mortgages.
How do current mortgage rate trends affect affordability and why does this matter now?
And North of 90% of borrowers get fixed rate loans. So, you know, what that means is you're paying the same interest rate over the life of the loan. Usually that's 30 years. And so your monthly payments stay about the same. With an adjustable rate mortgage, the interest rate stays the same for the first few years, usually five. And then after that, the interest rate can go up and down every six months. So those are the two main types of mortgages.
All right, but wouldn't it make sense then to sign up for the fixed-rate mortgage and have the same amount every month, you know, so there aren't any surprises?
Deciding on whether to get a fixed-rate mortgage or an adjustable, which is also called an arm, it's really an issue of personal temperament. You or I might prefer to avoid the risk. of our mortgage payments rising along with the interest rates. But a lot of gamblers are out there, you know, and they prefer to get the lower payments now on an arm with the possibility that rates and payments could drop in a few years. And in the meantime, those folks are saving money. One of the advantages of an adjustable rate mortgage or arm is that the initial interest rate is lower than what you can get on a fixed rate mortgage. And therefore, you're saving money in those first few years versus someone who got a fixed rate loan.
And then what happens to that more attractive interest rate?
Let's say you get a five-year arm. The interest rate stays the same for the first five years, and then it adjusts up or down every six months after that.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:00–2:30
2
How do current mortgage rate trends affect affordability and why does this matter now?
2:30–11:43
3
What are the main types of mortgages and how do fixed-rate and adjustable-rate loans differ?
11:43–15:22
4
When might an adjustable-rate mortgage (ARM) be a smarter choice than a fixed-rate loan?
15:22–18:02
Speakers
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