It is easy for homebuyers to be discouraged when interest rates move higher over a relatively short period of time. Projecting a mortgage payment on a house six months ago at a six percent rate was much more palatable than it might be today at seven percent or higher, but it does not have to put home ownership plans out of reach. There are options for buyers to explore that can create a more manageable monthly mortgage payment.

Homebuyers should be sure to ask their lender what options are available to buy down their interest rate. While it is natural to seek out the rate that comes with no additional fees, buying down a rate with “discount points” can be a worthwhile path to a lower monthly payment. With most lenders, there is a range of interest rates available on their fixed-rate products. Borrowers can often pay discount points, a small percentage of the loan amount, to buy down their interest rate, which raises closing costs but reduces the monthly payment.

Adjustable-rate mortgages (ARMs) remain a very popular option for many borrowers, especially in higher interest rate environments such as the one borrowers face today. Homebuyers should ask their lender about adjustable-rate mortgage options, as these rates are often lower than fixed rates. The rate will be fixed for a certain period, often three, five, seven, or ten years, and then will adjust periodically thereafter. Homebuyers need to be aware that rates on an ARM can be higher or lower when the time comes for the rate to adjust. However, an ARM can offer a lower initial payment, providing relief from higher monthly housing costs during that initial first fixed period.

If closing costs are a concern, it is important for borrowers to understand what these costs represent. Only a small portion of these fees goes to the lender. Borrowers should pay close attention to their Loan Estimate. Each section on page two is broken down by the type of fee and who it is paid to. Section A is where most of the differences from one lender to the next are typically found, as these are the fees that go directly to the lender, including any discount points. Charges may include items such as an origination fee or underwriting fee. The other sections of the Loan Estimate contain fees or costs charged by third parties. These fees or costs are generally consistent regardless of the lender. When comparing lenders, borrowers should pay particular attention to Section A of the Loan Estimate.

Lastly, knowing who the lender is can also make a difference. The lender may be a broker, independent mortgage lender, bank, or credit union. What happens to a loan after closing can vary significantly depending on the type of lender. For example, many banks and credit unions choose to keep the servicing of their loans in-house, which can be an invaluable benefit to the customer. When loan servicing remains local, it means the lender is invested in the success of the homebuyer and the community.

Homebuyers should ensure they are working with a lender that is ready and willing to educate them about their options. While the mortgage process may seem daunting, the wide array of available products can often provide unique opportunities on the path to home ownership.

About Newtown Savings Bank

Newtown Savings Bank is a community bank headquartered in Newtown, Connecticut, with over $1.8 billion in assets. The Bank has been deeply committed to its customers and the community since 1855. It has 15 branches located in Newtown, Bethel, Bridgeport, Brookfield, Danbury, Monroe, Oxford, Shelton, Southbury, Trumbull, and Woodbury, along with New Haven Regional Lending Center in Hamden, Conn. For more information and location details visit NSBonline.com or call 800-461-0672. Member FDIC. Equal Housing Lender.