Tips For Buying A New Home in A Rising Interest Rate Environment

rising interest rate

Buying a home post-pandemic has shattered the dream of potential home buyers. Even after you spent years saving up for the down payment while staying in a small rental home, rising interest rates may be keeping you farther away from owning your own home. 

While interest rates are still historically low, this isn’t the ’70s. Historical context acts as nothing more than a mere consolation. Bank of Canada has followed in the footsteps of the US Fed and raised interest rates consistently since the end of 2021.  That means you need to change strategies to buy new townhomes in Kelowna

Strategies To Buy New Housing Developments When Interest Rates Are High

1. Short-term Mortgage With A Fixed Rate 

A typical mortgage usually spans 30 years with a variable interest rate. That makes the monthly mortgage payments affordable for most homeowners. However, if you have high earnings and prefer to spend way below your means, you’re better off with a short-term fixed-interest mortgage. 

That way, you’ll have high monthly payments, but pay a lower total interest on the loan. Banks slash the interest rate by a few Basis Points (unit of change in percentage or one-hundredth of one percentage point) when you opt for a short-term loan. Even half a percentage difference can save you hundreds of thousands of dollars in interest. Choose a short-term loan for buying Kelowna homes if higher monthly payments seem feasible.

2. You Can Never Time The Market 

Financial reasons shouldn’t motivate you to buy a home unless you’re planning to upsell it in the housing market. For regular homeowners, big changes in life should help you decide whether you want to buy a new home. Marriage, expanding your family and other such significant reasons should be the motivation for buying a new home. 

Timing the market is impossible unless you are highly experienced in this industry and do it for a living. Fear of missing out on lower interest rates in the future may hike up average home prices beyond what you can afford. Don’t forget that you’re also paying rent when you aren’t moving into a new home. That’s why it’s best to get townhomes for sale in Kelowna when you’re ready to afford them.  

3. Buy Mortgage Points 

Combating high-interest rates is easy when you can pay to lower them upfront. You can do so by buying discount points. However, discount points are very expensive. A point costs 1 % of your loan amount and decreases the interest rate by 25 basis points. If you can afford the upfront cost, it may translate into big long-term savings. 

Before buying discount points, figure out how long it will take for you to break even. You can easily figure it out by dividing the mortgage installments by monthly savings. For instance, if the mortgage instalments before the discount points were $4000 and the new monthly installment was $3800, you need to divide $3800 by $200(monthly savings). In this case, you’ll spend 19 months or around half a year to break even.

4. Highlight Your Strengths in Your Mortgage Application  

Strengthening your mortgage application can also lower your interest rates. Lenders check a lot of factors before offering you a loan at a certain rate. Some of them include:

  • Your credit score
  • Income
  • Total debt, and more

You can improve some of those factors and strengthen your application. For instance, closing down some of the existing debts or paying off all your credit card bills can make your application more appealing to lenders. This allows you to negotiate a more favourable interest rate.   

5. Hire Home Builders to Customise The Newly-Built House

Don’t limit yourself to buying a home. There’s the option of buying a residential lot at a scenic location and building a custom home from scratch. This allows you to save money and build something unique that’s perfectly crafted to serve your needs. 

Residential lots are usually available in developing communities. Buying a waterfront lot and hiring Kelowna home builders to build your dream home can be cheaper than buying a new home. This translates to a lower mortgage loan that’s easier to pay off.  

Rising interest rates shouldn’t discourage you from owning your slice of paradise. These strategies help you get around rising interest rates and get closer to your dream. Don’t forget to shop around with different lenders for the best rates. Even a few basis points can make a huge difference in the gross amount. 

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