How to find the right mortgage rates for you
Quick insights
- To find the right mortgage rate, compare multiple Loan Estimates from mortgage lenders. Focus on the APR (not just the advertised interest rate), as well as the total closing costs.
- The rate you’re offered is affected by your credit score, debt-to-income ratio (DTI), down payment, loan type and whether you pay discount points.
- You may be able to secure a competitive interest rate on your mortgage by getting preapproved, asking about rate locks and reviewing lender fees.
Finding the best mortgage rate isn’t just about spotting the lowest number advertised online. You may need to shop for mortgage rates and understand what influences the rate you’re offered. Even a fraction of a percentage point can save (or cost) you thousands of dollars over the life of the loan.
By learning what affects mortgage interest rates and taking a few intentional steps before you apply, you can position yourself as a strong borrower and improve your chances of securing a competitive interest rate.
Why do mortgage interest rates change?
Mortgage interest rates change based on both economic conditions and your individual financial profile. Either of these aspects can change over time. Therefore, the timing of your mortgage application (or preapproval application) is important.
Economic and local factors
Interest rates also fluctuate with broader economic trends. Although mortgage rates aren’t set by the Federal Reserve, they typically move in the same direction as federal rate changes.
High inflation and strong economic growth often push mortgage rates higher, while slower phases can ease rates. During a recession, mortgage rates may decline as policymakers lower rates to encourage borrowing and stabilize the real estate market. Reviewing the larger effects of recessions on mortgages can help you prepare for shifting rate environments.
Mortgage interest rates also vary by state depending on local laws, market volatility, foreclosures, taxes and more. You may be able to find current mortgage interest rates in your area by searching with your ZIP code.
Personal factors
Lenders determine your mortgage interest rate by evaluating your credit score, DTI ratio and loan-to-value ratio (LTV). Borrowers with a stronger credit score and larger down payment generally qualify for lower rates and better loan terms. However, this is why timing is important. The rate you’re offered today could be different from the one you’re offered in three months.
Assuming economic factors don’t change significantly within a few months, your financials can change in that time. For example, you could improve your credit and DTI, and save for a larger down payment in several months. Improvements like these could qualify you for a better mortgage interest rate.
How to get the best mortgage rate
If you’re wondering how to get the best mortgage rate, it often comes down to preparing your finances and shopping around for mortgage rates from multiple lenders. Focus on the key factors you can control and take strategic steps before and during the mortgage application process:
- Strengthen your credit score. Review your credit reports, pay bills on time, reduce credit card balances and avoid opening new credit accounts before applying for a mortgage. Even a small credit score increase can improve your interest rate.
- Lower your DTI. Paying down existing debt or increasing your income can lower your DTI ratio and strengthen your borrowing profile.
- Save for a larger down payment. A higher down payment reduces your LTV, which means you can qualify for a lower interest rate. On a conventional loan, a down payment above 20% usually eliminates the need for private mortgage insurance (PMI).
- Compare multiple lenders. Request Loan Estimates from at least three mortgage lenders and review the interest rate, annual percentage rate (APR), lender fees and total cash to close side by side. For most scoring models, multiple mortgage hard inquiries made within 14 days are treated as one inquiry for scoring purposes; they’ll still show on your credit report, but the score impact is generally consolidated.
- Consider different loan types and terms. In general, a 15-year mortgage often has a lower interest rate than a 30-year mortgage. Adjustable-rate mortgages (ARMs) may start with lower introductory rates than fixed-rate mortgages.
- Ask about discount points. Paying mortgage discount points at closing may reduce the interest rate on your loan. This is like prepaying interest, so it’s important that you calculate your break-even timeline for buying down your rate.
- Get a mortgage preapproval before house hunting. If you’re comfortable with the loan terms, ask about a rate lock to protect against market increases while your loan is being processed.
- Maintain financial stability through closing day. Avoid job changes, large purchases or new credit accounts until your loan is finalized and disbursed.
Taking these steps can help you get a competitive mortgage interest rate while also reducing your long-term borrowing costs.
How can I find my current mortgage interest rate?
If you’re a current homeowner, you may have been paying a fixed- or adjustable-rate mortgage (ARM). Your interest rate is determined by your lender. You can typically find your rate on your original loan documents, monthly mortgage statement or online dashboard.
The interest rate on a fixed-rate mortgage stays the same as time goes on, while the rate on an ARM remains the same for an introductory period, then goes up or down depending on the current index. If current rates are lower than your current mortgage rate, it may make sense to refinance your mortgage. It depends on your budget and goals.
How can I use a mortgage calculator to estimate my interest rate?
You can use a mortgage calculator to get a potential interest rate and payment estimate based on your needs and goals. Enter property information and choose your preferences. You can get personalized loan recommendations and estimated monthly payments whether you’re buying a home or refinancing. Although calculated rates aren’t guaranteed, a calculator can help you view the numbers and begin to decide how to move forward.
In summary
Following current mortgage interest rates is beneficial if you’re a first-time homebuyer, a current homeowner looking to refinance or a homeowner looking for a second property. Comparing rates and preparing your finances may improve your chances of getting the best mortgage rate for your unique situation. You can also get help with general and specific mortgage questions from a Home Lending Advisor.
