Copyright CBS News
After two Federal Reserve rate cuts this fall, many mortgage shoppers expected (and hoped for) relief. Instead, mortgage rates crept higher in late October, a frustrating twist for buyers who thought the central bank's softer stance on its benchmark rate would translate to lower borrowing costs for homebuyers. Right now, average 30-year fixed mortgage rates are hovering above 6.4% — up significantly from the average 6.13% mortgage rate that was available just two weeks ago. For homebuyers, that uptick in mortgage rates matters. Even a fraction of a percentage point can add hundreds of dollars to a monthly mortgage payment, after all, and over time, tens of thousands in extra interest. Yet as the housing market adjusts to a shifting rate environment and a still-tight supply of homes, many borrowers are making critical mistakes that could cost them even more. Making the wrong moves now could cost you a lot of money and a lot of hassle over the life of your mortgage loan. So, it's important to know what you should avoid doing if you're buying a home soon. Find out how affordable the right mortgage loan could be now. 3 expensive mortgage rate mistakes homebuyers should avoid this November Here's what some of the most expensive mortgage rate mistakes are right now — and how you can sidestep them before you close on your home. Waiting for rates to drop significantly before you buy Perhaps the most expensive mistake homebuyers are making right now is sitting on the sidelines, convinced that mortgage rates will inevitably decline to even lower levels. While it's true that rates remain elevated compared to the rock-bottom levels of 2020 and 2021, waiting for a dramatic drop could backfire in multiple ways. First, if mortgage rates do decline, you'll likely face increased competition from other buyers who were also waiting. That will potentially drive up home prices and negate any savings from the lower rate. And, it's also worth acknowledging that the housing inventory you're seeing today may not be available in three or six months when rates hypothetically improve (if that happens at all). And, it's also important to remember that the Fed's October rate cut didn't lead to lower mortgage rates. It actually preceded a rate increase, demonstrating that predicting rate movements is nearly impossible. If you find the right home at a payment you can afford, remember that you can always refinance later if rates improve, but you can't go back in time to buy a house that's already sold. Explore your mortgage loan options and lock in a low rate today. Failing to lock your rate at the right time In a volatile rate environment like the one we're experiencing this November, failing to lock in the mortgage rate when you receive a favorable quote can be a costly gamble. Mortgage rates can shift daily, and sometimes multiple times within a single day, all based on economic data releases, geopolitical events or market sentiment shifts. Some borrowers mistakenly believe they should float their mortgage rate in hopes of capturing an even better deal, but this strategy often backfires when rates tick upward. Once you've found a competitive rate and are serious about moving forward with a purchase, locking it in provides certainty and protects you from adverse mortgage market movements during your closing process. Most mortgage lenders offer rate locks for 30, 45 or 60 days, and while there may be a small fee for longer lock periods, the peace of mind and financial protection are typically worth the cost. So, don't let the fear of missing out on a slightly better rate cost you the good rate you already have in hand. Focusing solely on the interest rate instead of the overall loan costs One of the more common mistakes homebuyers make is fixating exclusively on the interest rate tied to their mortgage loans while ignoring the broader picture of their total loan costs. While a lender might advertise an attractively low mortgage rate, that rate often comes with significant upfront costs in the form of mortgage discount points, origination fees and other added-on costs that can add up to thousands of dollars. For example, you might be offered a mortgage rate of 6.5% in return for purchasing two discount points versus 6.75% with no points. If you're not planning to stay in the home for at least five to seven years, though, paying those points upfront to buy down the rate may not make financial sense. You should also evaluate the annual percentage rate (APR), which incorporates both the interest rate and the fees, giving you a more accurate picture of the loan's true cost. And, consider your timeline, cash reserves and financial goals as well. Sometimes accepting a slightly higher rate with lower closing costs will keep more money in your pocket for emergencies, renovations or other investments. The bottom line After months of rate volatility, homebuyers entering the market this November face a tricky landscape: inflation remains sticky, mortgage rates are reacting unevenly to Fed policy and housing supply is still tight. But by avoiding a few common and costly missteps, borrowers can still come out ahead. So, don't waste time waiting for future rate drops that may not happen and don't delay your rate lock while waiting for a perfect moment to make a move. Don't focus solely on the mortgage rate you're offered, either. The other costs tied to the loan could undo those potential savings, and in this market, being proactive and not reactive is the surest way to save.
