Today's mortgage rates
How do mortgage interest rates work?
A number of things affect home loan rates: inflation, economic growth, the Federal Reserve's interest rate moves, the bond market and the housing market.
But those broad factors influence the average home interest rates available in the market, not necessarily the interest rates that are available to a specific borrower — like you.
The rates you’ll qualify for are a reflection of your personal financial health. If you’re in excellent standing, you should have no problem accessing the best mortgage rates out there.
However, the lower your financial standing, the more limited your home interest rate options will become.
Taking on a home loan is a big deal, so you'll want to save wherever possible, and getting the best mortgage rate possible is certainly a great start.
If you're looking for help on how to find the best mortgage interest rates, then this guide has you covered.
How to get the lowest mortgage rates
In terms of how to get the lowest mortgage rates, there are some factors you can control and some that are simply out of your hands.
As you focus on what you can do to ensure you get the best mortgage rates available, you have some options that will help make you a more attractive borrower.
Your credit score and credit history play an important role in your risk assessment.
The higher your score, the less risk you represent. Aim for a 740 or higher.
But if your score is less than amazing, you have ways to improve it. Self Lender offers credit repair loans that will help you get your score up to a number you need.
And when you have more savings set aside, you’ll stand out more as an applicant. Making a larger down payment amount lowers your loan-to-value, or LTV, ratio (basically how much money you borrow versus how much the home is actually worth).
You should aim for a 20% down payment or more. That’ll lower your LTV to 80%, which will please your prospective lender and also keep you off the hook for mortgage insurance costs.
More money in your bank account also shows lenders that you have the funds to keep up with future payments — another thing they’ll look favorably on.
How are mortgage interest rates set?
Unfortunately, when it comes to mortgage rates, there’s only so much you can personally do to influence what rates are available to you.
There are a number of market forces that affect mortgage rates on a day-to-day basis.
Mortgage rates tend to rise when the overall economic outlook is positive, inflation is high and unemployment is low. And conversely, when economic growth slows, inflation dips and unemployment rises, mortgage rates tend to drop.
The economy, inflation and unemployment don’t always move up and down together. There may be periods of time when they’re out of sync.
America's central bank, the Federal Reserve, helps set short-term interest rates. The Fed's movements are generally in reaction to what’s happening in the economic big picture, with a goal of ensuring "maximum employment" and stable inflation.
While the Federal Reserve’s rates and home interest rates move independently, they’re influenced by the same economic conditions and will often move together in the same direction.
When is the right time to qualify for a mortgage rate?
A few personal and general economic factors will determine whether it’s a good idea for you to take out a mortgage loan.
If you have a poor credit score, high levels of debt and negligible savings, it’s definitely not the time to take on a mortgage. You’ll want to be in great financial shape before you take on such a huge financial responsibility.
If you’ve got ample savings to cover a down payment, your credit report is spotless and you’re easily managing all your debts — including auto and personal loans — you may be ready. Now you can consider the external economic factors at play.
Based on the market forces we’ve gone over that influence mortgage rates, there are a few tips and tricks you can use to get yourself the best possible mortgage rates, whether you're buying a home or refinancing an existing home loan:
- Apply at the beginning of the month. According to Credit Sesame, the beginning of the month is when lenders are most eager to secure new mortgage loans.
- Wait until the fall. The busiest months for home loans are late spring and summer, when homebuying is most active.
- Take advantage of economic uncertainty. Mortgage rates dropped to historic lows 13 times between March and November 2020 as the country grappled with the impact of the novel coronavirus pandemic.
What is a mortgage interest rate lock?
Mortgage rates are subject to change not only every day, but from hour to hour. Locking your rate with your mortgage lender guarantees that the interest rate you’ll be charged on your loan is what you’ve both agreed to.
This ensures your mortgage rate won't go up significantly before your sale closes, even if interest rates skyrocket in the meantime.
You’ll have until 10 days before closing to lock your mortgage rate with your mortgage lender.
Anything else I can do to lower my mortgage rate?
If you have the cash on hand, you can actually pay a little more to lower your mortgage’s interest rate.
By paying fees called discount points, you can essentially "buy down the rate" of your loan. Each point will cost you 1% of your loan’s overall value and will decrease your interest rate by one-quarter of one percentage point (0.25) for the life of your loan.
You can buy multiple points or even fractional points, depending on how much you can afford.
You’ll pay your points at closing, along with your other closing costs.
How to get the best home mortgage rates
Hopefully this guided helped you demystify the process of how mortgage lenders come up with mortgage rates.
If the timing is right and the mortgage rates look good to you, you can start to think about getting preapproved for a loan and start house hunting.
But if your personal finances may still raise some red flags, you might think about getting your debt under control before you wade into the borrowing pool.
Getting your finances into the best possible shape will open the door to lower mortgage rates.
And don’t forget that different lenders offer different interest rates and loan programs. When you shop around for rates, make sure you check out a few mortgage lenders to find your perfect fit.