Refinancing a mortgage is a golden opportunity to lock in today's low interest rate for the next 15 or 30 years. While interest rates now are still low, there's a good chance they will be heading up in the coming months.
The typical mortgage payment in the Seattle area rose by around 17% from August 2017 to August 2018, according to a recent industry report. So many home buyers today are being more cost-conscious when purchasing a home. Fortunately, there are some things borrowers can do to minimize their monthly payments.
Seattle Mortgage Payments Rise 17% for ‘Typical’ Home
According to a report published by Zillow earlier today, the monthly mortgage payments for a typical home in the U.S. were 15.4% higher in August 2018 than in August 2017. The median home value in the U.S. rose by 6.5% during that same 12-month period. That means mortgage payments have risen more than twice as fast as home values, on average.
The figures above pertain to the nation as a whole. In the Seattle-Tacoma-Bellevue metro area, the monthly mortgage payment for a typical home increased by 17.1% from August 2017 to August 2018. The median home value for the Seattle-area real estate market rose by 8.2% during that same 12-month period.
Of course, this should come as no surprise to those who are familiar with the local real estate market. Homeowners, home buyers, and real estate agents in the area are all too familiar with the steady rise in prices.
The median home value in the city of Seattle was around $750,000, as of October 2018. That was an increase of around 7% from the same month a year earlier. Across the broader Seattle-Tacoma-Bellevue metro area, the median price was around $486,000 as of October — up by more than 8% over the previous year.
Mortgage rates have also risen. Over the past 10 months alone (since the start of 2018) the average rate for a 30-year fixed mortgage loan rose by 95 basis points, or 0.95%. That’s based on the weekly industry survey conducted by Freddie Mac.
So the higher monthly mortgage payments among Seattle-area homeowners are being driven by two things — rising home values, and higher interest rates on mortgage loans.
How to Minimize Monthly Housing Costs
The average mortgage payment for the Seattle-Tacoma-Bellevue area has risen steadily, following home values and interest rates. So it’s now more important than ever for buyers to be cost-conscious when buying a home.
Along those lines, here are some ways a borrower could reduce the size of the monthly mortgage payments.
1. Discount points: Some borrowers choose to pay discount points in exchange for a lower mortgage rate. One point equals one percent of the loan amount. With this strategy, you’re paying more upfront for a lower rate and a lower monthly mortgage payment (compared to if you didn’t pay points).
2. Longer term: Borrowers who want to reduce their monthly payments as much as possible often go with a longer mortgage term. This spreads the payments out over a longer period, thereby reducing their size. This is one reason why the 30-year fixed mortgage is the most popular loan option among home buyers in Seattle and nationwide.
3. ARM vs. fixed: Adjustable-rate mortgage loans (ARMs) tend to start off with a lower interest rate than a longer-term fixed loan. So borrowers who use ARMs are often able to reduce their monthly payments, compared to what they would pay each month for a fixed-rate loan.
4. Larger down payment: By putting more money down on your home purchase, you’re borrowing less. This results in a smaller monthly payment, when compared to the same purchase price with a smaller down payment.
5. Avoiding PMI: Private mortgage insurance is usually required when the loan-to-value ratio exceeds 80%. Some borrowers choose to make down payments of 20% or more, in order to avoid PMI. This in turn can result in a lower monthly payment.