Getting the best mortgage rate is important, because your interest rate determines how much you pay for your loan. And since a home purchase is a major financial commitment, even a small difference in your loan’s rate can add up to thousands of dollars over time.
After hitting record lows in 2020 and 2021, mortgage rates have moved higher this year. So how can you get the best possible rate?
1. Shop Around
With a mortgage being one of the biggest purchases most people will ever make, it is important to get the best rate possible. This can be accomplished by shopping with multiple lenders. Many borrowers can save thousands of dollars by doing just this. The best way to shop around is by getting rates from both local and national lenders, as well as credit unions and online brokers. It is also important to compare APRs, as this will give you a better picture of the overall cost of borrowing.
Mortgage interest rates are volatile, so it is important to compare and shop around on a regular basis. To do so, check the weekly averages posted by Freddie Mac each Thursday. These rates represent a weekly average of quotes given to borrowers with strong credit and a 20% down payment. The actual mortgage rates this week you may be offered could differ from these averages due to a number of factors, including your credit score, down payment size and debt-to-income ratio.
It is also important to note that the rates are based on specific borrowers, so they do not represent the exact rates you will be offered. You will also want to take into account other fees such as lender fees and closing costs when comparing mortgage rates. Finally, it is best to keep your mortgage rate shopping within a two-week window to minimize the impact on your credit score.
While many borrowers focus on the price of the home they are purchasing, it is just as important to focus on getting the lowest mortgage rate possible. Even a small difference in the interest rate on your loan can make a huge difference in how much you pay for your home. With mortgage rates higher than they were over a year ago, it is more important than ever to shop around and compare rates.
2. Look for Discount Points
Mortgage interest rates are one of the largest expenses you will face when purchasing a new home, and reducing your interest rate can help you save money over the course of your loan. Mortgage points are a type of prepaid interest that borrowers can pay upfront in order to lower their mortgage rate. One mortgage point equals 1% of the loan amount, and you can purchase them in full or partial increments.
A lower mortgage rate can help you qualify for a loan that may otherwise be out of reach due to your debt-to-income ratio, and it can also save you thousands over the life of your loan. However, paying mortgage points is an expensive upfront expense, and it may not make sense for you if you don’t plan to stay in your home long enough to reap the benefits of the lower rate.
To determine if purchasing mortgage points is worth it, you can use a mortgage calculator to compare the costs and benefits of different mortgage loans with various combinations of rates and discount points. Enter the mortgage amount, term and the number of points you want to purchase, and the calculator will show you which option offers the lowest monthly payment and total interest cost.
It’s also important to consider the tax benefits of purchasing mortgage points. Before you decide to purchase them, it’s important to speak with a certified public accountant to see if they are eligible for a tax deduction under your federal income tax return. In the past, origination mortgage points were not tax deductible, while discount mortgage points have been allowed to be deducted on Schedule A since 2017.
3. Look for a Refinance
Mortgage rates have fallen this week, and homebuyers are rushing to take advantage. But before you pull the trigger on a new loan, consider whether it makes sense for your situation. For many homeowners, refinancing offers an opportunity to save money, change the term of their mortgage or tap their equity. But if you plan to sell your home in the near future, it may not make sense to refinance at all.
Mortgage rates are based on a variety of factors, including your credit score, home price and down payment. To determine if a refinance is right for you, check your mortgage rate online and compare refinance offers from multiple lenders. Also be sure to look at the annual percentage rate (APR), which includes mortgage fees and other costs.
You can use our Mortgage Calculator to calculate the cost of different mortgages and compare them side-by-side. Keep in mind, however, that the actual cost of a mortgage may vary from lender to lender. Once you have narrowed down your options, contact lenders for a Loan Estimate that itemizes estimated loan costs.
A lower interest rate may save you thousands over the life of your loan, but the best mortgage for you depends on more than just the interest rate. You should also consider your credit score, your time horizon for owning the home and any other financial goals you have in mind.
If your credit isn’t ideal, work on boosting it before trying to refinance. Typically, mortgage lenders want borrowers with a score of 620 or higher to qualify for the lowest rates. But there are some refinance options for borrowers with less-than-perfect scores, such as streamline programs.
4. Check Your Credit
Your credit score is a big part of the equation when it comes to mortgage approval. Your lender will pull your credit scores (more specifically, your FICO Scores) from the major national bureaus when assessing your mortgage application. Having a good or excellent credit score can save you money on your home loan, both at signing and over the lifetime of the loan.
The score you see in a credit monitoring app or on your bank statements won’t be the same one your lender pulls, which is why it’s important to check your own scores before starting to shop around for mortgage rates. It’s also possible that you can improve your credit enough to qualify for a lower rate, even if you’re not at an “excellent” level. For example, raising your score by a single point could allow you to qualify for the next underwriting tier and save you thousands in the long run.
Aside from your credit score, lenders will consider your debt-to-income ratio and how much you earn relative to how much you spend. This is also why it’s helpful to compare mortgage offers from multiple lenders, if you can.
Mortgage rates have been on quite a ride this year, going from below 4% last March to highs over 7% in November and now back to just above 6% in the early weeks of 2023, according to mortgage investor Freddie Mac. However, averages are just that–averages. Your personal finances and your credit scores will ultimately determine the kind of mortgage rates you get, which is why it’s important to understand how to optimize your finances before shopping for a home. The bottom line is that the more you shop around, the better chance you’ll have of finding a low interest rate on your new mortgage.
5. Look for a Lender
Mortgage rates vary from lender to lender, but there are a few factors that affect all loans. One of the biggest is a borrower’s credit score. Lenders use the score to evaluate risk and determine whether a borrower will make their payments on time. Borrowers with higher scores are seen as safer and can therefore qualify for lower mortgage rates.
Another factor is the type of loan you choose. For example, a longer-term loan may have a lower rate but will require larger monthly payments than a shorter-term loan. Finally, a down payment is another big influence on mortgage rates. Borrowers who put down at least 20 percent typically qualify for the lowest mortgage rates.
When shopping for a mortgage, it’s important to compare rates and fees from multiple lenders. By using an online tool, you can see sample rates from different lenders side by side. Remember that these sample rates are only averages, so your actual mortgage rate could be different. Additionally, be sure to look at the annual percentage rate (APR), upfront fees and closing costs when comparing rates.
Mortgage rates are constantly changing, so it’s always a good idea to keep looking for the best deal. There are many ways to do this, from asking for recommendations to comparing mortgage rates online. By taking the time to shop around, you can save money on your home loan and free up cash for other expenses. And, don’t forget that a lower mortgage rate can also help you pay off your loan faster and save money in the long run. So, don’t hesitate to start searching for the lowest mortgage rates today! You might be surprised at just how much you can save.
If you’re looking to get the lowest mortgage rates this week, here are some tips to help you:
- Shop around: Compare rates from multiple lenders to find the best deal. Don’t just focus on the interest rate; also consider factors like closing costs and fees.
- Improve your credit score: Your credit score is one of the biggest factors that lenders consider when determining your mortgage rate. Take steps to improve your credit score, such as paying down debt and making payments on time.
- Make a larger down payment: Putting more money down upfront can help you secure a lower interest rate, as it reduces the lender’s risk.
- Choose a shorter loan term: Shorter loan terms typically come with lower interest rates, as lenders assume less risk.
- Consider a mortgage broker: A mortgage broker can help you shop around for the best rates and terms from multiple lenders.
Here are some FAQs related to getting the lowest mortgage rates:
- What is a good mortgage rate?
A good mortgage rate will depend on factors like your credit score, loan term, and the type of mortgage you’re applying for. As of May 2023, rates are around 3.0-3.5% for a 30-year fixed-rate mortgage.
- How much can I save by getting a lower mortgage rate?
Even a small decrease in your mortgage rate can save you thousands of dollars over the life of your loan. For example, on a 30-year, $300,000 mortgage, a 0.25% decrease in your interest rate could save you over $16,000 in interest over the life of the loan.
- Can I negotiate my mortgage rate?
While it may be possible to negotiate your mortgage rate with your lender, it’s not always easy. Shopping around and comparing rates from multiple lenders is often the most effective way to secure the best deal.
In summary, to get the lowest mortgage rates this week, you can shop around, improve your credit score, make a larger down payment, choose a shorter loan term, or consider working with a mortgage broker. Be sure to compare rates from multiple lenders and weigh all of your options carefully before making a decision.