Mortgage Rates are Rising — Here's What You Should Do To Offset Higher Borrowing Costs, According to ChatGPT
You can add rising mortgage rates to the list of challenges facing U.S. house hunters.
The average rate for a 30-year fixed mortgage rose to 7.40% as of Oct. 8, according to theFederal Reserve Bank of St. Louis (FRED). That was up from 6.3% a year ago and represented the highest rate since November 2023.
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Meanwhile, according to separateFRED data, the average price of homes sold in the U.S. is $502,700 — still close to the all-time high and well above historical norms.
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Given these dynamics, what can homebuyers do to make ownership more affordable? One option is to offset higher mortgage rates/borrowing costs. We asked ChatGPT for specific suggestions and here’s what the artificial intelligence (AI) chatbot had to say.
Try To Keep Borrowing Costs Low
There are several steps you can take to lessen the impact of rising mortgage rates. Here are some of the options ChatGPT shared.
Shop multiple lenders. Even a small rate difference can “materially affect” the payment over a 30-year loan. Get estimates from several lenders and use competing offers to negotiate rates, fees or both.
Buy discount points. Paying more money upfront can reduce the interest rate and monthly payment. This strategy makes more sense if you expect to keep the mortgage for several years. Before paying points, first calculate the break-even period.
Ask about lender credits. Instead of paying points, you can sometimes accept a slightly higher rate in exchange for credits that reduce your closing costs, preserving more cash for the down payment or emergency fund.
Make a larger down payment. This is a good way to lower borrowing costs — as long as it doesn’t drain your savings. A large down payment (e.g. 25% or higher) reduces the amount borrowed and therefore the interest paid. It can also affect mortgage insurance and loan pricing, although the optimal down payment varies by loan program and borrower.
Consider an ARM. An adjustable-rate mortgage can lower the initial rate you pay. But be careful here because the payment can rise later. When considering an ARM, don’t just focus on the initial rate. You should also compare the adjustment rules, caps and worst-case payment.
Explore temporary rate buydowns or seller concessions. In some transactions, a seller or builder might contribute toward financing costs. This can lower payments during the early years.
Improve your credit score before applying. A strong credit profile can improve the terms you get on a mortgage loan. Avoid any major financial changes while you're preparing for a mortgage.
Try To Minimize the Purchase Price
Beyond finding a cheaper mortgage, another step you can take is to reduce the price you pay for a home. Here are some of the AI chatbot's suggestions.
Go below your initial price ceiling. If mortgage rates have pushed your desired payment too high, deliberately search 10% to 20% below your original budget. A cheaper house at today's rate can be more manageable than an expensive house with hopes of refinancing later.
Expand your search. You can often find cheaper homes by widening your search to nearby towns, older neighborhoods or areas just outside the most popular school districts. In addition, a modest increase in commute time can produce a substantial price reduction.
Look for homes that need cosmetic work. Properties with dated kitchens, old flooring, unattractive paint or poor landscaping typically sell for much less than move-in-ready homes. Make cosmetic improvements gradually to reduce the financial impact. Better yet, taking a DIY approach can save a lot of money versus hiring contractors to do the work.
Find homes that have been sitting on the market. A property with a long listing period, recent price reduction or a previous deal that fell through can give you more negotiating leverage as a buyer.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice. It was created with the assistance of artificial intelligence and reviewed by our editorial team for accuracy. However, AI-generated content may be inaccurate, incomplete or outdated. You should independently verify important information through reliable sources before making any decisions based on this content.
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