HOMEBUYERS ARE FINDING WAYS TO TAKE THE STING OUT OF RISING RATES

Mortgage rates are at their highest level in more than a decade. Home buyers are fighting back.

More borrowers are paying fees to cut their interest rates and making higher down payments to lower the amount they have to finance, lenders and real-estate agents say. People buying homes under construction are choosing to lock in today’s rates rather than risk even higher ones later.

And more home buyers are considering home loans that carry lower rates in their early years. Applications for adjustable-rate mortgages have doubled over the past three months, according to the Mortgage Bankers Association.

For much of 2020 and 2021, ultralow mortgage rates helped Americans offset a sharp increase in home prices. The average rate on a 30-year fixed mortgage fell below 3% for the first time in July 2020 before bottoming out at 2.65% in early 2021.

Everything changed this year. The Federal Reserve’s pullback from the mortgage-bond market has helped drive up rates on home loans close to 2 percentage points since early January, their steepest climb in decades. And they are likely to climb even more if the Fed continues to raise its benchmark rate throughout the year, as expected.

Prospective buyers who had been quoted rates well below 4% when starting their search now face rates closer to 6% than 5%. They are scrambling to adjust.

More home buyers are opting to pay fees to secure lower rates in the form of rate-lock agreements and discount points. A borrower can buy points at a rate of 1% of the value of the mortgage; each point lowers the rate by a fraction of a percentage point.Borrowers in

April paid an average of $3,134 in discount points and loan-origination costs, according to estimates from the National Association of Realtors. That is 31% higher than a year earlier.

Another option homebuyers are considering to combat rising interest rates--adjustable mortgages.

Average rates on adjustable mortgages last week ranged from 3.69% to 5.03%, depending on the loan terms, according to Bankrate.com. The website’s average rate on a 30-year fixed rate mortgage was 5.22% over the same period.

Today’s ARMs are different from the ones that became hugely popular before the 2008 financial crisis. Then, ARMs attracted borrowers with reduced interest rates that skyrocketed after a year or two, saddling homeowners with payments they struggled to afford. At their peak in 2005, adjustable-rate loans accounted for close to 50% of all mortgages issued, according to the Urban Institute.

Postcrisis regulations beefed up borrower protections. Lenders can no longer offer short-term teaser rates, and there are caps on how much rates can increase. To qualify, applicants must be able to afford mortgage payments at rates significantly above the starting rate. ARMs nearly vanished; in January, they were just 1.7% of new mortgages, according to the Urban Institute.

Variable-rate mortgages still carry risks: If a borrower is unable to sell or refinance as planned before a possible rate increase, monthly payments could eat up a much bigger chunk of income.