How to find the best mortgage interest rates

Finding the best home loan interest rates may be beneficial for first-time homebuyers, homeowners looking to refinance and anyone looking to invest in a second home. Interest rates are constantly fluctuating, so learning about how to find a loan’s interest rate, as well as why they tend to fluctuate, may help you navigate the loan selection process. Read on to learn about what interest rates are, how they can change and what could improve your chances for a more competitive loan.

What is an interest rate vs. an APR on a mortgage?

A mortgage interest rate is the amount of money you pay your lender each month, in addition to the borrowed amount. It is essentially their compensation for financing your home. Interest rates vary depending on the lender, federal interest rates and other economic factors at that time.

Conversely, your Annual Percent Rate (APR) is an overall look at the cost of borrowing money. The interest rate is expressed as a percentage and is only one part your monthly mortgage costs. The APR includes the interest rate, mortgage broker fees and other costs associated with the entire loan.

Why do mortgage interest rates change?

Mortgage interest rates change based on the current state of the economy with your standing as a candidate and the lender.

When you apply for a mortgage, the interest rate will be affected by how risky they estimate that loan to be. This is typically evaluated based on your credit score and loan-to-value ratio. Your loan-to-value ratio is determined by the value of the home you are buying and the amount of your mortgage. If you have a low credit score and are taking out a larger loan, your interest rate will be higher than someone with a good credit score taking out a smaller loan amount.

Regarding the overall economy, there are a few factors that contribute to the fluctuation of mortgage rates. If inflation is high and the unemployment rate is up, you will usually see a rise in mortgage interest rates. This is often a reaction by the Federal Reserve. The Federal Reserve raises interest rates if the economy is moving too fast and vice versa. Although mortgage interest rates are independent of federal interest rates, they tend to trend in the same direction.

Mortgage interest rates vary by state depending on local laws, market volatility, foreclosures, taxes and more. You can find current mortgage interest rates in your area by searching with your zip code.

How can I find my current mortgage interest rate?

If you’re a first-time homebuyer, your interest rate will be determined by your lender. As we mentioned earlier, the mortgage interest rate you’re offered depends on your credit score, loan-to-value ratio and the state of the economy. Usually, first-time homebuyers shop around to see what interest rates are available at different lenders.

If you’re a current homeowner, you’ve either been paying a fixed or adjustable-rate mortgage. A fixed-rate mortgage stays the same as time goes on, while an adjustable-rate mortgage remains the same for an introductory period, then goes up or down depending on the current index. In some instances, it may make sense to refinance your mortgage if refinancing may lower your interest rate.

How can I use a mortgage calculator to estimate my interest rate?

You can use a free mortgage calculator to get a potential interest rate and payment estimate based on your needs and goals. Plug in the property information and choose your preferences to get personalized loan recommendations and estimated monthly payments for your new home purchase or refinance. Although these rates aren’t guaranteed, it can help you see what the principal and interest rate would be together, combined with other fees associated with your mortgage.

Remaining educated on current mortgage interest rates is beneficial if you’re a first-time homebuyer, a current homeowner looking to refinance or even a homeowner looking to invest in a second place. Knowing how interest rates change and why can help you find the most competitive rate and remain in the know with your current mortgage plan. You can always look to your Home Lending Advisor for further assistance.