Mortgage Rates Raise Over 6% (Again) — Here's How to Make the Best of It

Mortgage interest rates abruptly changed course and shot up over 6% this week, causing applications for new loans and refinancing to drop accordingly. The average rate on a 30-year fixed mortgage is now 6.36% — the highest rate we've seen since August.

Housing options have become prohibitively expensive for many, requiring clever ways to help pay the cost of rent while waiting to find the right option to progress to home ownership.

To help you weather these times, here are some smart money moves to make when mortgage rates are on the rise.

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1. Time your purchases right

Thinking about buying a new home? On the one hand, it may be wise to hit the gas and speed up your purchase. Interest rates are likely to increase again, so it might make sense to secure a mortgage or auto loan before that happens.

On the other hand, a decision like this isn’t one you should make hastily. If rushing the process means you’ll put yourself in a tight spot financially or accept a bad deal just to get it over with, it might be better to wait.

2. Shop around for loan rates

If you’re not sure how to get a loan for a reasonable rate, start by shopping around for multiple offers. Not all lenders will raise their rates at the same time or to the same degree, so compare loan packages before signing on the dotted line.

You have 45 days to submit as many mortgage applications as you’d like without each one counting as a separate credit inquiry. Try to keep your rate shopping within that 45-day window to avoid additional and unnecessary inquiries and any impact on your credit.

3. Pay points to lower your mortgage rate

You can also use discount points to lower your mortgage rate. You’ll typically pay 1% of the loan amount upfront to reduce your interest rate by one-eighth to one-quarter percent. For example, if you pay an additional $1,000 on a $100,000 mortgage, you could drop your interest rate from 3.5% to 3.25%.

Although this strategy could get you a better rate, you’ll need more cash on hand to make it work. Choose one of the best mortgage lenders and work with them to decide if paying discount points makes sense in your situation.

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4. Refinance your mortgage

When you refinance, you take out a second mortgage to pay off your existing one, but with terms better suited to your current financial situation.

A compelling reason to refinance is the possibility of securing a more favorable interest rate than what you’re already paying. With rates poised to increase again soon, you might want to lock in low rates while you still can.

That said, refinancing may not be beneficial if your credit profile isn’t as strong as it used to be. Consult one of the top mortgage refinancing companies to determine if now is the right time for you to refinance.

5. Refinance your student loans

Like refinancing a mortgage, refinancing your student loans can sometimes help you trade a higher interest rate for a lower one. Over the life of your loans, that lower rate could save you hundreds, if not thousands of dollars.

The possibility of student loan forgiveness is still looming, though. And with recent changes to the administration of the Public Service Loan Forgiveness and income-based repayment programs, there may be other avenues you could explore to actively reduce your balance instead of transferring it to another lender.

6. Take stock of your investments

Anytime the market experiences volatility, the first question on investors’ minds is if they should buy or sell their stock.

Before you start making changes to your stock allocation, review your current investments carefully. You may decide to diversify your portfolio, or you might be content to leave your stocks alone for the time being. Either way, it’s a good idea to know where you stand.

Whatever you choose to do with your investments, base your stock allocation on market research, and consult with an advisor first.

7. Switch to a high-yield savings account

Rising interest rates might be cause for concern if you anticipate needing a loan soon, but they can actually boost your savings if your money’s in the right type of account.

Look back at your most recent savings account statements or call your bank to find out the interest you’re earning on your stored-away funds. Ask your institution if they plan to raise that rate to stay competitive. If not, consider shifting your emergency fund to one of these high-yield savings accounts . You could get a better rate of return and help your money grow faster.

8. Pay down your credit cards

With interest rates going up across the board, your credit card issuer might start charging you higher interest, too. As a result, it could be a good idea to whittle down what you owe on your credit cards.

Make sure your debt payoff plan considers your regular monthly expenses, however. Knocking out credit card debt is great, but not if it puts you behind on other bills.

Finally, review your budget, figure out how much extra you can put towards your balances, and come up with an actual strategy as opposed to throwing cash at your cards without a long-term vision.

9. Look into low-interest balance transfers

If you still want to avoid higher interest rates but paying off your credit cards isn’t an option, a balance transfer card might be the answer.

These cards let you shift your debt from one credit card to another, consolidating payments and hopefully saving on finance charges along the way. The key is to use a balance transfer card with a lower interest rate than you’re paying with your current card issuers.

There is a caveat, however. Balance transfers free up your credit cards to be maxed out all over again, leaving you saddled with even more debt than you started with. If you don’t trust yourself to cut back on credit card spending altogether, proceed with caution.

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10. Don’t rush into anything

Regardless of the money moves you’re contemplating, weigh your options before you take action. With interest rates going up, you have more to consider now than when rates were lower.

Prioritize your financial goals in order of importance and feasibility, and decide what makes sense to do now and what should wait.

This doesn’t mean you have to stay financially stagnant. But there’s a big difference between jumping on a good opportunity and making rash, emotional decisions. The former can work to your advantage, while the latter can lead to regret and frustration.

Bottom line

Just because interest rates are going up doesn’t mean you’re at a financial dead-end until they go back down. There are steps you can take while you wait out the market, and you might not need to wait at all.

That said, knowing whether or not to move forward with a home purchase, loan refinance, or stock reallocation is a bit trickier than usual right now. Don’t feel like you have to navigate these decisions alone. Enlist the help of a financial advisor who can walk you through your options and guide you to the best one. In addition, finding additional ways to grow wealth can help cover the cost of higher rates.

Money tips that can work for everyone

No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.

Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.

Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.

Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).