Rising Rates While You’re Under Contract

You have options to safeguard yourself from fluctuating rates.

The Federal Reserve has increased rates multiple times this year and will continue to do so throughout 2022. That means if you’re in the process of buying a home, the rate your lender quotes could increase sometime in the future. So what happens if interest rates increase after you’ve already gone under contract? Is there any way to protect yourself? There are three things that you can do.

First, you can prepare to have a quicker inspection period. The quicker it’s over, the faster you can get your loan officer to order the appraisal. From there, you can lock your interest rate relatively quickly to make sure that you are locked in at that rate. A unique point about locking interest rates that most people don't know is that you can unlock your interest rate if rates go down. I highly encourage you to ask your loan officer to pay for this because it's more than fair.

"The quicker the inspection period is over, the faster you can process the appraisal."

The next thing you can do is buy your interest rate down. This will depend on how risk tolerant you are and what your interest rates will be. If you permanently buy your interest rate down, you risk wasting your money when rates go down the next year, but if they go significantly higher, you have no risk of your interest rate ever increasing.

Another option you can choose is called a 3-2-1 buydown. Here’s how it works: If market rates are currently at 6.25%, your first year of interest rate will be 3.25%, your second year will be 4.25%, your third year will be 5.25%, and then the highest your interest rate will go will be at 6.25%. If you bet your buck that the interest rates will come down relatively quickly, this is the smartest way to do it.

Make sure that you're protected and that your real estate professional has this information. If you have any other questions, feel free to reach out to me by giving me a call or sending an email. I’m always here to help.