Ways to Take the Sting Out of Rising Mortgage Rates

Mortgage rates are at their highest level in more than a decade. Home buyers are fighting back.

More borrowers are paying fees to cut their interest rates and making higher down payments to lower the amount they have to finance, lenders and real-estate agents say. People buying homes under construction are choosing to lock in today’s rates rather than risk even higher ones later.

And more home buyers are considering home loans that carry lower rates in their early years. Applications for adjustable-rate mortgages have doubled over the past three months, according to the Mortgage Bankers Association.

For much of 2020 and 2021, ultralow mortgage rates helped Americans offset a sharp increase in home prices. The average rate on a 30-year fixed mortgage fell below 3% for the first time in July 2020 before bottoming out at 2.65% in early 2021.

Everything changed this year. The Federal Reserve’s pullback from the mortgage-bond market has helped drive up rates on home loans close to 2 percentage points since early January, their steepest climb in decades. And they are likely to climb even more if the Fed continues to raise its benchmark rate throughout the year, as expected.

Prospective buyers who had been quoted rates well below 4% when starting their search now face rates closer to 6% than 5%. They are scrambling to adjust.

“It’s kind of like giving a toddler some sugar for a while and then taking it away,” said Ralph McLaughlin, chief economist at Kukun, a real-estate data firm. “They want to know whether it’s going to be taken away forever and whether they can live off things that aren’t sugar.”

More home buyers are opting to pay fees to secure lower rates in the form of rate-lock agreements and discount points. .

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