A good mortgage rate can save you thousands or even hundreds of thousands of dollars over the course of your home loan. That is why shopping around for good mortgage rates should be on your to-do list before applying for a new mortgage or refinancing your existing mortgage.
Securing a low interest rate on a home loan is important because it will dictate how much you have to pay monthly and how much you will need to pay in finance fees over the life of the loan. A high rate might mean you are paying more in interest for you home than you are on the actual purchase price. Getting a good interest rate will depend on many factors, many of which are within the borrower’s control.
How Do You Find Good Mortgage Rates?
Mortgage Rates are constantly changing and are based on many variables, including the average interest rates, the duration of the loan, and more. Your personal situation may also affect interest rates, including your credit history and credit score, income, the amount of your down payment, participation in government programs, and other factors.
A Good Credit Score Can Save You Thousands
One of the first things a lender will do is pull a copy of your credit report and credit score. You should do the same before applying for a loan. Lenders are now looking for credit scores of 720 or higher in order to provide the best interest rates on loans. If your credit score is lacking or you have a history of late payments, you may not only get a high interest rate, you may be denied a mortgage loan.
On the flip side, having a mortgage can increase your credit score because it shows a regular payment history. You may be able to use this to your advantage to refinance to lock in a lower interest rate.
This table shows how a good credit score can affect your mortgage rates (example: 30-year fixed mortgage at $300,000):
| FICO® score | APR | Monthly Mortgage Payment |
|---|---|---|
| 760-850 | 4.645% | $1,546 |
| 700-759 | 4.867% | $1,586 |
| 680-699 | 5.044% | $1,619 |
| 660-679 | 5.258% | $1,658 |
| 640-659 | 5.688% | $1,739 |
| 620-639 | 6.234% | $1,844 |
Get a copy of your credit score: You can check your credit score by following these instructions: FICO Credit Score.
Increase Your Down Payment
The more money you pay down, the less you have to borrow. Your interest rate can be reduced based on the amount of money you put up as a down payment. Ideally, lenders are looking for 20% or more down on the purchase price of the home. Making a down payment of 20% or greater can also help you avoid Private Mortgage Insurance (PMI), which generally costs several hundred dollars per year.
Length of the Mortgage Loan
If you opt to take a 15-year mortgage versus a 30-year mortgage, your lender may be able to provide a better interest rate. If you can afford to pay off a mortgage loan in a shorter period of time, take the option.
Borrower’s Income
Your lender will verify your income and calculate the amount of mortgage you can afford to pay based on your other financial obligations. Your ability to pay back the monthly mortgage payment will be affected by how much money you make. A lowered-interest rate may be possible if the ratio between your debts and income is balanced and you can prove you can afford monthly payments.
Type of Mortgage – Fixed or Adjustable
In recent years, many borrowers opted for an adjustable-rate mortgage because they paid smaller monthly payments for several years and then were responsible for making a larger ballooned payment later in the mortgage. This proved to be part of the reason many homes fell into foreclosure, as borrowers could not afford the lump sum payment.
A fixed-rate mortgage means all payments through the life of the mortgage are the same once an interest rate is locked in at the time of loan commitment. The amount of your mortgage interest rate will vary based on your financial history, the market, and the type of interest rate you are pursuing.
Qualifying for lower mortgage interest rates: To wrap it up, if you want to qualify for the lowest mortgage rates, then you need to have a good credit score, borrow less money in conjunction with a 20% or greater down payment, get a shorter loan period, provide proof of income, and get a fixed rate mortgage.
What You Need to Know About Mortgage Rates
The following articles may help you better understand how mortgages work and how to get the best rates on a mortgage or save money when you refinance your mortgage.
- How to Lower Your Mortgage Payments. Everyone with a mortgage wants to know how they can lower their payments. This article gives you three solid ways you can save money on your mortgage payment each month.
- When Should You Refinance a Mortgage? Refinancing your mortgage can save you a ton of money over the course of your loan. This article can help you decide if it is a good idea to apply for a refinance loan.
- What Credit Score Do You Need to Refinance a Mortgage? Refinancing your mortgage is a great idea if you can save money each month, and you can lock in these rates, which are currently near historic lows. This article shows you how your credit score plays an important role in refinancing your mortgage.
- How to Get Rid of Private Mortgage Insurance. Are you paying PMI? Find out how you can get rid of PMI once and for all and repay your mortgage more quickly!
- Should You Make Biweekly Mortgage Payments?. Paying your mortgage bi-weekly can save you hundreds of dollars each year and thousands of dollars over the course of your mortgage.
- Should You Pay Off Your Mortgage Early? This is a common question with no firm answer. Take a look at your options and make the best decision based on your needs.
- Should You Pay Points on a Mortgage? Paying points on your mortgage can potentially save you tens of thousands of dollars over the course of your mortgage.
- Mortgage Pre-qualification vs. Pre-approval. You will want to get this language down when you are searching for a house – the difference is bigger than you might think!
- Understanding the Home Mortgage Interest Deduction. Paying interest on your mortgage may lead to a tax deduction for you. This article breaks down the basics of the home interest mortgage deduction.
