The last year has seen much higher short-term interest rates as the Federal Reserve acted decisively to address inflation.

Mortgage rates - like other lending rates, such as a home equity line of credit or a credit card rate - are not necessarily driven by short-term rates. In the case of mortgage rates, the 30-year US Treasury rate (hyerlink) has more of an impact on the actual rate than you may be offered, whether you are looking at a 30-year fixed mortgage rate or something shorter, such as a 5 year Adjustible Rate Mortgage (ARM).

Rates are going up though, and home prices are coming down. The decline in real estate prices, however, may be more due to a change in the market from COVID times when people wanted to spread out. Another reality impacting home prices is that not everybody is going back to the office.

Against this backdrop, there are three pieces of general advice that should hold especially true for those seeking a mortgage.

First, do not expect that interest rates will come down soon and that you will be able re-mortgage your home at a lower rate in a year or two. Even if short-term rates come down, longer-term interest rates are likely to remain at higher levels than they have been at the last two decades. This will affect your ability to re-mortgage.

Second, you therefore should not buy more home than you can afford based on the incorrect assumption that rates may return to what they were pre-pandemic. Your best friend may have locked in a mortgage at 3% but it may be a century before anyone gets a rate like that again.

Third, consider different products, including a 15-year or a 20-year mortgage, and a 5-year ARM. These products may offer lower interest rates and may be more appropriate for you if you do not plan to stay in your home indefinitely.

Mortgages often seem like a necessary evil for those of us who don’t can’t pay for a home outright, which let’s face it, is nearly everyone.

Buying a home is a lengthy, exhausting process of talking to different professionals, getting quotes, and lining up endless stacks of paperwork. If you’re hoping for the smoothest version of events, be sure to know which mortgage questions to ask your lender and keep these common mortgage mistakes in mind.

1. Rushing in blind

Take your time. A house is a huge investment and any mistakes you make will follow you for a long time. Make sure you take some time to plan out your strategy.

For a home mortgage you’re going to need good credit and a decent credit history. So check your numbers and start making moves to improve any problem areas in your credit.

Take a few months to start budgeting for extra home hunting expenses as well. You can never be too prepared.

2. Underestimating costs

It’s easy to look at the price of the house, your downpayment and the closing costs when you’re budgeting to move into a new home. But many people are caught off guard by expenses they didn’t initially consider.

Insurance and taxes are going to factor in as well. It’s not a bad idea to sit down with a trusted financial advisor to get the whole picture before setting a savings goal.

The more money you save, the better loan you can potentially qualify for.

3. Changing jobs

Getting a mortgage depends on a lot of factors, and your income is one of the bigger ones. A lender is going to look at how much money you make and compare it to the size of the loan you’re asking for. If they don’t like what they see, you may be bumped into a different interest bracket or not disqualified from the loan entirely.

Even if you’re making the leap to a better job that pays more money, you still want to wait at least a few months before applying for a mortgage as the income shift will throw a wrench in the negotiations. A lender will look at your last few years’ worth of income and take into account job stability. So plan out the timing of any major employment changes so they don’t derail your home hunting.

4. Multitasking

Sometimes we get excited and try to do everything at once, but applying for a mortgage is really something that deserves your total attention.

It’s tempting to open new credit cards or start messing with personal loans since you’ve already got your credit report laid out in front of you, but avoid doing so. New lines of credit will lower your odds of a low interest rate.

5. Last minute deposits

If you’re going to be shuffling money around, do so a few months before you apply for a mortgage. This is called seasoning your assets. It’s incredibly simple, all you have to do is wait.

6. Forgetting to lock-in

Mortgage rates are incredibly fluid. The rate you were quoted early in the morning may not be the same rate available to you in the afternoon.

Once you’re happy with your mortgage rate, be sure to lock it in. Tell your lending institution, your broker, or your bank when you’re ready to lock in your rate. The lock in won’t be permanent, and may only be guaranteed for a matter of weeks or even days. But for that lock in period, you will be safe from any rate changes.

7. Not reading the fine print

Read your loan documents and then read them again. If anything unsavory is in the works, it’s going to pop up in the terms and conditions somewhere. Make sure you know exactly what you’re agreeing to and what your requirements are.

A house is a big investment and a lot of money. You don’t want to lose all that effort because you don’t understand the loan’s conditions. It’s a good idea to have someone professional look over the documents, as well, ideally someone who’s not directly involved with the loan.

8. Ignoring other options

Don’t get tricked into thinking all mortgages are the same. Despite what companies and lenders want you to think, it’s possible to find better deals by shopping around a bit. Get your quotes and a general idea of several different lenders before picking one.

Approach mortgage shopping the same way you approached your general house hunting. You didn’t sign for the first house you looked at, did you? Then don’t accept the first lending option you come across, either.

9. Skipping the pre-approval

Pre-approvals and pre-qualifications are both important, but a pre-approval is the more useful of the two. With a pre-approval, a lender will actually pull your credit to determine what size loan you qualify for. You’ll fill out a placeholder mortgage application and you’ll receive documentation stating your loan approval.

If you’re shopping in a competitive market, having a pre-approval can mean the difference between getting the house you want or being turned away. Sellers will often accept a lower offer if it’s from someone who has been pre-approved for the loan.

Learning from the mistakes others have made before you on mortgages isn’t just smart, it’s valuable! By knowing what to look out for, you’ll be setting yourself up for success in securing your home loan.

Making monthly minimum payments on a mortgage can affect your wallet, retirement, and self-esteem. We’ll focus on the most effective mortgage repayment strategies like making initial and principal payments, and how to downsize expenses. A mortgage can be paid off in less than 7 years, but this will take some effort to understand the different strategies for how this can be done.

Quick Find Guide:

Why Should I Pay Off My Mortgage Faster?

6 Fast Mortgage Repayment Strategies:

1. Make an Initial Payment
2. Second Payment Towards the Principal
3. Velocity Banking Strategy
4. Downsize Expenses to Maximize Repayment
5. Refinance Your Mortgage
6. Make a Large Down Payment

Why Should I Pay off My Mortgage Faster?

Remember that initial cost breakdown of your mortgage? It probably has you paying a large sum of money towards interest (the amount of money paid to the bank for the opportunity of being given a loan). Paying off a mortgage faster will reduce the amount of money paid to interest over the term of the loan. When the principal is reduced, less interest is incurred, meaning you save money. The goal is to pay it off as fast as possible, so the money could be reinvested elsewhere.

6 Fast Mortgage Repayment Strategies

All of these strategies imply that your bank allows quicker payments and doesn’t have a prepayment penalty. If you’re unsure, contact your bank and ask them before using these methods. This is important because some banks will charge a flat or percentage-based fee for making extra payments.

In order to maximize the amount of time saved by paying off a mortgage faster, multiple strategies can be used at once.

As a way to visualize the following ways to pay off a mortgage faster, we’ll include an example that can be used for some strategies: Imply a $100,000 mortgage has a 30-year fixed rate of 4.50% APR, which has a minimum payment of $507 a month.

1. Make an Initial Payment

It may not seem like much but making a payment before your first scheduled mortgage payment can save thousands over the term of the loan. Since this payment is before any scheduled payments, it will directly go to the principal. For individuals looking to get started with real estate, this strategy is very effective and will ensure that money is saved over the long-term. Unless a lot of money is put down on the property, this strategy will only save you a few thousand. Making an initial payment of 25% of the mortgage will shorten it dramatically.

Making an initial payment with the example can save $1,448.00 and making double the initial payment can save $2,896.00. This means that the mortgage could be paid off 3 to 6 months sooner.

2. Second Payment Towards the Principal

Having extra money at the end of the month is nice but paying off a mortgage faster is just as rewarding. Any net income you currently have (interest – expenses = net income) could be used to make a principal payment towards your mortgage. This second payment would be after the minimum payment has been paid for that month. By making a principal payment, it will lessen the amount of time and money needed to completely pay off the mortgage.

Making a principal payment of $250 per month will save $44,056 in interest and shorten the term of the loan to 14 years and 9 months. This cut the length of the mortgage in half and saving a lot of money in the process.

Ensure your bank is aware that this extra payment is for the principal only.

3. Velocity Banking Strategy

The velocity banking mortgage repayment strategy is a bit complex, but very effective. As you’ve had your mortgage for a few years, and currently owe less than what it’s valued at, banks will allow you to open a Home Equity Line of Credit (HELOC). This HELOC will act as your checking account, receiving direct deposits from your income streams, have an individual debit card, and act just as a normal account would.

The key here is to make lump sum principal payments to your mortgage with the HELOC balance, and then paying off the HELOC with your positive net income. Then each and every time the HELOC is fully paid off, you continue making lumpsum payments until the mortgage has been paid off.

Using a HELOC, this mortgage could be paid off in as little as 6 years and 5 months, paying only $15,582 in interest payments.

The HELOC will allow you to free up some capital for unexpected expenses, unlike a traditional mortgage repayment strategy. The strategy also requires that you have available net income at the end of every month. Learn more about Velocity Banking.

4. Downsize Expenses to Maximize Repayment

If you’re one of the millions of people living paycheck to paycheck, you may want to take a look at your expenses. Driving a new car can feel great, but your wallet is probably hurting, and your long-term debt obligations are questioning their existence. Downsizing on your spending habits will ensure that extra money could be used to pay off your mortgage faster.

Taking a long-term view at life instead of living in the short-term can open up a wide range of opportunities for reducing the amount of debt we have. Mortgages tend to be our biggest personal debts and should be paid off as soon as possible.

Creating a budget is one of the most useful tools that we can use to organize our income and expenses. By setting our primary goal of paying off our mortgage quickly, we can then approach a budget with the right mindset and decision-making process to ensure we can afford more than monthly payments. Learn more about how to create a budget.

5. Refinance Your Mortgage

A 30-year fixed-rate mortgage tend to have higher interest rates than those with a 15-year term. This is because the bank has to lend out money for an extended period of time, increasing the risk for default. Refinancing a mortgage to a shorter timeframe will reduce some interest expenses but will ultimately increase the monthly minimum payment.

Ensure the new mortgage has a lower interest rate than the previous mortgage.

If not, you’re wasting money.

When refinancing, it’s best to look over your current budget and determine how much money can go towards the mortgage every month. This is a permanent decision and could potentially leave you owing more than you can afford.

Refinancing the mortgage within the example could mean that the interest rate could drop from 4.5% to 3.5%. The fixed-rate would then be 15 years instead of 30. The refinancing would save $53,726 in interest expenses.

See mortgage refinance rates where you live here.

6. Make a Large Down Payment

The strategy is simple, put down as much as you can to lessen the amount of money owed within the mortgage. The more money you can put down initially, the less amount of interest, fees, and expenses you’ll incur throughout the life of the loan.

A typical down payment for a house is between 3 and 10 percent. Aiming for 15-20 percent may seem like a big difference, but it makes a huge difference in the amount of money being paid in interest.

Example: 30-year fixed-rate, 4.5% APR:

1. $100,000 house purchased with 3% down:

Mortgage of $97,000 +

Down Payment of $3,000 +

Interest payments of $85,040

Total Paid: = $185,040

2. $100,000 house purchased with 15% down:

Mortgage of $85,000 +

Down Payment of $15,000 +

Interest payments of $62,000

Total Paid: = $162,000

As we can see, making a down payment of $12,000 more can save $25,040 in interest payments. Coupled with another strategy such as making a second payment towards the interest, the amount of time to pay off A will take significantly longer than B.

It is common to be excited when starting the home buying process, especially for first-time homeowners. However, that excitement can quickly be taken over by confusion and overwhelm when it comes to sifting through options for the home loan. Part of the issue plaguing potential homeowners is the reality that there are tens of thousands of lenders willing and able to offer a new home loan. One of the solutions to the overwhelming number of lenders revolves around a mortgage broker.

Working as an intermediary between the homebuyer and multiple lenders, a mortgage broker helps borrowers navigate the process of getting a new mortgage from start to finish. Not only do they review financial status and credit history, but they also work through pre-approval processes, help gather the right documentation, and lend a hand with mortgage loan applications. The best mortgage brokers also offer guidance on which mortgage offer is the most suitable. While there are plenty of reasons to work with a mortgage broker, there are just as many that make homeowners avoid them as a resource. Here are the top ten advantages and disadvantages of using a mortgage broker for a new home purchase.

The Pros

1 – Comparison Shopping Made Easy

Mortgage brokers make the necessary task of comparing various lender offers a breeze. They essentially take on the brunt of the work for homebuyers, evaluating options from multiple lenders through a single source. Brokers bring homebuyers several selections based on their lender network and help guide borrowers through the terms of each.

2 – A Single Application

Mortgage applications can be long and cumbersome to complete, but with a broker, homebuyers only fill out a single application, once. The broker then reaches out to the lender network on behalf of the buyer and no additional application forms are required.

3 – Working with Poor Credit

Individuals with less than perfect credit histories or scores may benefit greatly from working with a qualified mortgage broker. Because many mortgage brokers have extensive experience in the industry, they know which lenders are more willing to make an offer to homebuyers who have had a financial misstep or two in the past. This is not often the case when working directly with a single lender.

4 – Personalized Service

Unlike big banks and national financial institutions, mortgage brokers are either individual brokers or part of a small team in most cases. This size difference lends itself to more personalized service throughout the application and closing process.

5 – Possible Reduced Costs

A mortgage broker with a long history with specific lenders may be able to save homeowners on one-time fees. Charges for applications, appraisals, origination fees, and lenders fees may be waived when working with a mortgage broker.

The Cons

1 – You Can Do it Yourself

Homebuyers have, in most cases, the same access as mortgage brokers in terms of finding different lenders and comparing mortgage loan terms. There is no reason to use a mortgage broker if you feel confident you can get the best deal on your own.

2 – A Slower Process

Because the broker does the work for the homebuyer, the total time it takes to get from application to closing can be longer than doing it on one’s own. This is because the mortgage broker shops various rates and terms behind the scenes, and it can take some time to get all the available options back to the homebuyer.

3 – Interests May Not Be Aligned

One of the biggest drawbacks to working with a mortgage broker is feeling less than confident that the individual has the homebuyer’s best interest at heart. Mortgage brokers may be paid finders fees or higher commissions with certain lenders, and less with others, but this can be difficult to ascertain as a homebuyer.

4 – Qualified Help

While there are several advantages to working with a mortgage broker, some homeowners may not know if they are receiving the most qualified help along the way. Unfortunately, some individuals holding themselves out to be qualified brokers are not, meaning they do not have a mortgage broker license or the state-required bond to go with it. Homeowners should take time to search for their mortgage broker on the NMLS database before agreeing to work together.

5 – Paying for Help

Although there are instances where mortgage brokers help save expenses for homebuyers, they do not work for free. Mortgage brokers are paid either on a commission from the lender they suggest or as a percentage-based fee of the total mortgage balance, also paid by the lender. While this is not often a charge paid for out of pocket, it is common for these fees to be rolled into the final mortgage balance owed back to the lender.

Working with a mortgage broker can be advantageous to homebuyers who want help with comparison shopping, paperwork, and finding the best deal on their new home loan. However, it is necessary to check that the broker is qualified, has access to several lenders, and does not charge excessive fees for the assistance provided.

From my office, I am perched in a position where I can see all of the construction in midtown Manhattan. I saw the crane blow over on top of the Park Hyatt in September 2012 two days before we were struck by Superstorm Sandy.

I think that that may pale in comparison with what is going on now.

There are three major building sites that are each already extending well over 1400 feet into the sky and not topped out. If you look at the picture above, you will see cranes high into the sky and these are from left-to-right:

111 West 57^th Street

53 West 53^rd Street (the Jean Nouvel Moma Tower)

The Park Hyatt (completed in 2013)

Central Park Tower (255 West 57^th Street)

There are many more high-rise projects throughout Manhattan that aren’t even visible here.

As we head through the summer, we are seeing a perfect storm - rising interest rates, an overbought New York property market at its highest levels, and more-and-more very high-end inventory properties flooding the market (with fewer and fewer non-US buyers). Developers are eager to close to maintain (avoid losing) the contracts they have and to try to battle upon completion for the last remaining bits.

I see all these cranes working at a frenetic pace every morning, lifting extraordinarily heavily machinery.

While construction in New York is very tightly regulated, the pace is unparalleled and I am afraid we could see one or more very serious accidents here very soon.

Buying a home means more than just committing to raising a family or living out one’s golden years in a particular house. It usually comes with financial obligations in the form of a mortgage. It is therefore important to prepare for the possibility that mortgage interest rates that have been at records lows for years may be rising soon. In particular, this could affect how a new homebuyer approaches whether to consider adjustable rate mortgages (ARMs) in addition to fixed-rate mortgages.

Fixed-rate mortgages

A fixed-rate mortgage is the most traditional form of a mortgage, locking in both the interest rate and monthly payments for the life of the loan. These mortgages can vary in length. The standard is the 30-year mortgage, but a 15-year fixed mortgage offers purchasers a quicker amortization schedule and ownership timeline.

Regardless of the length, many prefer a fixed rate mortgage because the repayment obligations are clear from the amortization table. They do not change the course of the loan, offering borrowers predictability —offering the peace of mind that comes with stability and avoiding interest rate fluctuations.

To be clear, fixed rate mortgages can be appealing if you think rates are lower now than they will be in the future. With rates near historical lows and seemingly poised to rise, locking in a rate could make sense for many borrowers now.

Adjustable-rate mortgages (ARMs)

An adjustable-rate mortgage (ARM), unlike a fixed rate mortgage, has a fixed interest rate for a few years with the 5-year ARM being the most popular (3, 7 and 10-year ARMs are also common) with the amortization ordinarily extending over 30 years. Once this initial fixed rate period ends, the monthly payments will vary as market rates change. While many ARMs offer limits on how much your rate might increase in a given adjustment period or over the life of the loan, a purchaser selecting an ARM should understand that if rates rise from these levels there interest obligations (i.e., monthly payments) may reset at much higher levels.

For those planning to stay in their home beyond the fixed period at the beginning of an ARM, the risk to rising rates at this point in the interest rate cycle may offset any advantage to reducing near term interest payments. Even if you might have been more likely to take on the benefits of an ARM mortgage, a fixed rate at this point may just offer you more safety, security and flexibility.

Start exploring rates where you live here.

When the Federal Reserve acted to raise the Fed Funds rate in June 2017, it set the new Fed Funds target rate at 1.00 to 1.25%. While, this marked the fourth rate increase since the beginning of 2016 (and since the Fed had lowered rates to zero during the financial crisis), mortgage rates have remained at or near their all-time lows. Therefore, the news continues to be good news for potential homebuyers and those who may be looking to refinance.

Mortgage rates have not yet risen because they are tied to 30-year US Treasury Notes. US Treasuries remain below 3% as central bankers worldwide continue to engage in monetary and fiscal policy designed to stimulate their economies (and to keep their currencies from appreciating).

The Federal Reserve however continues to guide towards one more increase in the Fed Funds rate at the end 2017, 3 more in 2018, and a Fed Funds target rate of 3% by 2019. Some economists and analysts believe that a 30-Year US Treasury rate over 4% before the end of 2017 is possible. The US Treasury rate could reach 5 to 5.50% by 2019.

Moreover, it is important to note that the Federal Reserve now holds over $1.7 billion in mortgage-backed securities (MBS). The Federal Reserve began purchasing these securities in 1998 and purchased them in earnest during the financial crisis of 2009. The Fed has been the longest lasting purchaser in MBS markets and has provided its largest source of funds. It is now ending its purchases, but in its June statement, the Fed indicated that it will be a net seller of MBS securities for the foreseeable future.

If you have been postponing refinancing, this could be your final chance to get in before rates begin to really rise to normalized post-crisis levels.

If you are a potential first-time homebuyer or someone considering a second home, you should also be mindful of current rates and the risk of a real rise in the coming months. However, the caveat here is that if rates rise, we will see home prices fall, making them more affordable.

Some economists, in fact, fear that a rise of the 30-Year US Treasury to 5.50% will derail the US homebuilding industry and have severe implications for the US economy in 2019.

It is my prediction, however, that the Fed may not raise as aggressively as it is currently targeting if Janet Yellen resigns as Chairman of the Federal Reserve and is replaced by Gary Cohn who is actively lobbying Trump for the position. In addition, Minneapolis Fed President Neel Kashkari is also in the mix and has turned very dovish, having now dissented on the last two Fed moves. To boot, inflation expectations are contained.

Whatever happens, we are certainly in for some interesting times in the mortgage industry. Be sure to check rates frequently here to know where things are heading.