Are you afraid of making a commitment to a home? Do the interest rates prevent you from pursuing your dream of finding the perfect one? Forbes Capretto Homes has some advice: Marry the house, date the rate. 

What does this mean? 

Think about commitments and where they come from. It starts with dating, a period of getting to know each other and seeing how you “fit” together.  

Dating is temporary. Eventually, it either ends or becomes a relationship.  

Marriage is a long-term commitment, the result of compatibility that leads to love. When it’s right, you want to stay together, so you make the promise.  

“Marry the house, date the rate” is an analogy to the depth of a relationship. When you fall in love with a house enough to want to buy it, you take the vow—in the form of a mortgage. You aren’t married to the rate, however. You must distinguish between the house and the interest rate so that you don’t give up on “the right one”. 

Rates are temporary. 

Here’s where people are stalling. Interest rates can be intimidating. But you need to realize that rates go up and down. More importantly, you are not committed to a particular mortgage rate. When you choose to buy the home you love, you agree to the purchase price, but the terms of the loan can be changed. You choose the home. 

In other words, marry the house, date the rate! 

A mortgage has a term—a beginning and an end. Most often, you agree to 15 or 30 years. But you have options for your loan that allow you to manage the impact of the interest rate. 

A rate buydown allows you or the seller to purchase discount points that will effectively lower your interest rate. The points cover the difference in interest costs, like prepaying the interest to capture a lower rate. 

The cost of a discount point is equal to 1% of the total loan amount. One point will lower your interest rate by 0.25%. So, if you’re borrowing $400,000 at 7% APR, one discount point would equal $4,000 (1%) and lower your rate to 6.75% APR (0.25%). 

You can purchase as many discount points as you want for the rate buydown. You can also determine the rate buydown program that best suits your situation. 

3-2-1 rate buydown. With a 3-2-1, the interest rate is lowered 3 points in the first year of the loan, then 2 points for the second year and 1 point in the third year. After the third year, the interest reverts to the full rate agreed to at closing. 

2-1 rate buydown. This program lowers the rate for the first two years of the loan: 2 points for the first year and 1 point for the second year. 

1-0 rate buydown.This option lowers the interest rate by one point for the first year only. 

Permanent rate buydown. With a permanent rate buydown, the interest rate of the loan is paid to be lower for the full term of the mortgage. 

Is a rate buydown worth the price? 

Should you pay the price of a rate buydown? In some cases, the seller pays for the discount points, so, of course, it’s worth it!  

If the cost of buying down your loan is coming from your own budget, calculate the breakeven point. This is the month of your loan when you will begin saving money on your initial investment of buying the discount points. 

According to an example in a Wall Street Journal article, if you pay $20,000 to buy down the rate and end up saving $320 per month, your breakeven point comes at 63 months into the loan term. That’s calculated by dividing $20,000 by $320. Are you planning to stay in the home for more than 63 months, just over 5 years? If you’re marrying the home and making a long-term commitment, then the rate buydown is a good value. 

Date the rate for a few years. 

An adjustable rate mortgage (ARM) could be the solution to managing the interest rate on your mortgage. An ARM provides a lower rate for the early period of the loan term. Most often, the lower introductory rate is fixed for 3 to 10 years, depending on the loan program. After that period, the interest rate adjusts at specified intervals, often every 6 months. A 5/6 ARM, for example, features a fixed rate for the first 5 years and then adjusts every 6 months thereafter. The lender establishes a maximum amount (known as a “cap”) for the incremental increases, so you won’t have sticker shock later. 

This loan option requires a higher down payment than a conventional fixed rate mortgage. Still, ARMs have become more popular in the past year as interest rates continued to rise. More homebuyers are using the ARM option to date the rate. 

Is an adjustable rate mortgage right for you? There are several scenarios where choosing the ARM makes good financial sense. 

You only plan to live in the home for a few years and the period of the initial fixed rate fits your timeline. 

The home is a short-term investment that you plan to sell before the rate is scheduled to be adjusted. 

You expect your income to rise in the near future and only need the reduced interest payment to get established. 

You plan to refinance and will use the introductory period to save up money or make extra loan payments. 

Refinancing your mortgage is always an option. When you refinance your loan, you’re breaking up with the mortgage you currently have. You’re telling the lender, “It’s just not working out for me.” 

And you move on to a new mortgage. You use the new loan to pay off the balance of the old one. You’ll close on the loan, just as you did with the previous mortgage, so plan to pay the closing costs on your refi. 

Refinancing can be a good solution for managing the investment in your home. 

Lower the interest rate and reduce the monthly payment and long-term cost of your mortgage. 

Shorten or lengthen the term of your loan. 

Convert from an adjustable rate mortgage to a fixed rate mortgage. 

Leverage the equity you have gained in your home, by borrowing more than the balance of your current home. Known as a “cash out refinance”, the funds are often used for home improvement or to reduce other debt, 

But here’s the caveat. Learn when it’s a good time to refinance your home. The change in interest rate needs to present enough savings to offset the closing costs, which can be as high as 6% of the new loan. A rule of thumb is that the refinanced rate should be at least 1% less than the rate of your current loan program. 

Finding the right mortgage lender is essential to successfully dating the rate. A knowledgeable, experienced professional will explore your options and discuss the costs and other details. You’ll learn how your financial situation impacts the pending marriage to your new home. 

Before you take those vows—including “for richer, for poorer”—talk to a lender who is committed to supporting the relationship between you and your new home. 

There’s so much to love about living in Western New York. The Buffalo suburbs offer a variety of options. Experience the unique style of  island living on Grand Island, surrounded by the Niagara River. Consider Clarence, NY, a town that earned a solid “A” from Niche, or Hamburg, NY, #2 on Homesnacks’ list of “10 Best Buffalo Suburbs to Live in For 2024”. And Orchard Park, home of the Buffalo Bills, is a thriving, bustling suburb where you’ll never run out of things to do! 

Forbes Capretto Homes is building communities of new homes for sale in Western New York, in all of these appealing Buffalo suburbs. We invite you to fall in love with one of our quick move-in homes, brand new construction that’s ready and waiting for you or let us build your dream home on the site of your choosing. 

The Forbes Capretto Homes team will guide you, step by step, through our proprietaryDesign, Build & Beyond process. We’ll also match you up with a professional lender who can ensure you find just the right rate to date! 

Contact Forbes Capretto Homes today to spark something lasting in your life.