Current mortgage rates can make a big difference in what you’ll pay for your new home or mortgage refinance. When mortgage rates are high, borrowers spend more in interest, but when mortgage rates are low, borrowing becomes more affordable. However, so many factors affect mortgage rates — everything from the economy to inflation to your own credit score — that they change frequently, making it important to monitor rates whenever you’re thinking about taking out a new loan.
Learn more about how they’re determined, and how you can get the best rate.
Today’s current mortgage rates can show you overall trends, but what really matters is the rate you get on your own mortgage. You could decrease your monthly payment and even save thousands of dollars in interest over the years by getting a low mortgage rate. Here’s how to get the best rate for you:
- Boost your credit: Work on improving your credit score, which can improve your chances of a lower interest rate. Lenders are looking for borrowers with a proven track record of repaying their loans.
- Increase your down payment: If you can, increase what you put down on the home. The less you borrow, the less risk you pose to the lender (and the more equity you’ll have in the home from the outset).
- Borrow less: You may be able to get a lower rate by borrowing a smaller amount. While a bigger down payment can help, so can buying a less expensive home. Consider whether you truly want to buy at the top of your price range or if you can rein in your budget a bit.
- Explore your options: Different mortgages tend to have different interest rates, and there are alternatives to the traditional 30-year fixed. You may be able to get a lower interest rate by choosing an adjustable-rate mortgage (ARM), a 15-year mortgage, or a government-backed option like an FHA loan.
- Compare lenders: Shop around to see what lenders will offer you. Using an online prequalification tool will give you a good idea of what real-world rates you can expect.
- Pay points: Paying points on a mortgage is a way to buy down your rate by making a payment upfront. The amount you’ll pay and how much you can save will vary by lender.
When you take out a mortgage, you promise to repay the mortgage lender what you’ve borrowed, which is called the principal. Mortgage interest is your cost of borrowing that money. The higher your mortgage interest rate, the more you’ll pay your lender in interest.
Fixed-rate mortgages are the most common. With this mortgage type, the interest rate you receive at the beginning of the mortgage stays the same for the entire term. That’s why it’s so important to get the best rate you can; it’s the rate you’ll keep until you sell the home, pay it off, or refinance the loan.
Mortgage rates change frequently. Some factors that influence these changes are out of your control because they’re caused by larger economic forces, but others are within your power to change. The factors below have the greatest effect on mortgage rates:
- Inflation: When inflation rises, mortgage rates tend to increase, too.
- Central bank decisions: The Federal Reserve aims to keep inflation below 2%, a goal that encourages growth without letting costs soar. To combat high inflation, the Federal Reserve may make adjustments to the federal funds rate. When that target rate rises, mortgage rates tend to follow.
- The bond market: There is a relationship between bonds and mortgage rates. When bond rates rise (especially 10-year Treasurys), mortgage rates tend to rise as well.
- Your credit score: Lenders typically save their lowest rates for people with higher credit scores.
- Your loan amount: The loan amount, especially as compared to the value of the home (the loan-to-value ratio, or LTV), can affect your mortgage.
- Mortgage type: Whether you choose a fixed-rate or adjustable-rate mortgage, or conventional or government-backed loan, can affect the interest rate you receive.
- Term length: Typically, longer terms come with higher interest rates.
- Home location: The location of your home matters, too, as your area’s local economy can affect the rates available.
- Type of property: Whether the home will be a primary residence, vacation home, or rental property affects the interest rate as well.
Research is key when comparing mortgage rates. Use these tips to compare mortgage rates and find the best deal:
- Shop around: Make sure to check several different lenders for rates. There can be a sizable difference between what one lender offers compared to what another one does. A 2023 study by Freddie Mac using the prior year’s data found that homebuyers who compared at least two lenders saw an average rate reduction of 0.20 percentage points.
- Get pre-approved: A mortgage pre-approval will give you the most accurate rates because it uses the same financial information as a mortgage application.
- Check different interest types: Get rates for both adjustable- and fixed-rate loans.
- Ask about loan programs: You may be able to save money with an FHA, VA, or USDA loan if you qualify.
- Consider paying for points: See whether your lender offers discount points to bring the rate down and determine if that’s an affordable solution for you.
When comparing rates, use the APR, not the interest rate, as it will help you compare apples-to-apples by accounting for discount points, origination fees, closing costs, and other costs.
Although it’s wise to look for a low mortgage rate, don’t let that be the sole deciding factor in your homebuying journey.
"Mortgage rates will drip lower throughout mid-summer, but that doesn't mean you should wait for rates to bottom out,” said Dan Green, CEO of Homebuyer.com. “If you find a home you love and the payments fit your budget, make your offer before the market gets crowded."
According to the Wall Street Journal, mortgage rates will drop throughout 2024, but probably not to the rock-bottom levels they were just a few years ago. Average rates on a 30-year mortgage are forecasted to land between 6% and 7% by the end of the year.
A rate lock freezes the mortgage interest rate on your loan until closing. It makes sense to lock your rate now if rates are rising because it could help you keep your rate low. When interest rates are dropping, a rate lock could actually lock you into a higher interest rate. Using a float-down option will let you lock the rate and give you the option to “float down” to a lower rate if rates drop.
A good home loan rate is one that is at or below market trends. A good rate for you would be the lowest rate you can get considering your individual situation, which includes your credit score, the home you’re buying, the type of loan, and how much you have to put down. Shopping around is the best way to ensure you get a competitive home loan rate.
Mortgage points (also called discount points) let you pay your lender a fee upfront in exchange for a lower interest rate. Generally, one point equals one percent of the loan amount. You can pay a fraction of a point, a whole point, or more than one point. The amount your interest rate will decrease depends on the lender and their policies.
The interest rate measures how much it will cost you to borrow as a percentage of the principal. The annual percentage rate, or APR, calculates the interest you’ll pay, plus any fees, points, or charges, and expresses it as a yearly percentage. It is a better way of comparing different loans than using interest rates alone.
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