National Rates

Kirk Haverkamp

Published on November 12, 2015

Reader-friendly guide to mortgage rates

Getting the lowest mortgage rate: When people set out to get a home loan, that's usually the #1 thing on their list. But how do you find the best home loan rates?

Several factors affect your ability to get low mortgage rates. Your credit score, for one. Your down payment, the property you're buying, the length of the loan, how much you borrow, and even when and where you're borrowing can all play a role in determining what sort of home loan interest rates you can obtain.

Finding the best mortgage rates is only one piece of the puzzle when it comes to shopping for a home loan. Other factors, such as closing costs and the type of mortgage, will affect your overall costs as well.

The following are tips on how to get the best mortgage rate you can, followed by short explanations of the main things that affect the mortgage rate you'll pay.

Need more information? Just follow the highlighted links to further reading on individual topics that you can explore at your leisure.

Finding the best mortgage rate

To get the lowest mortgage rates, you need to shop around. Instead of shopping for a home and then applying for a mortgage, try reversing the order – get set up for a mortgage first. With a preapproved mortgage in hand, you'll be in a much stronger negotiating position with the seller compared to someone who has yet to arrange for financing.

Start off by checking your credit report and score. You want to check your credit report for any errors that might lower your credit score, while your credit score will be an important factor in determining the lowest mortgage rates you can get. Follow the highlighted link for information on ordering your report and correcting errors.

Next, talk with a couple mortgage professionals for some advice on your qualifications and guidance on your mortgage options, including setting a budget for your loan. Find out what sort of mortgage loan rates they're offering, but don't make a commitment yet.

Then compare mortgage rates from a number of lenders. Check with a number of different types: large mega-banks, regional banks, credit unions, mortgage brokers, nonbank lenders, etc. See who's offering the combination of the best mortgage rates and terms for a borrower with your credit profile, income and down payment in the loan amount you're seeking.

Remember that home mortgage rates can change daily and sometimes even several times a day. So it's important to get all your rate quotes the same day, or better yet within a few hours of each other, so you know you're making a valid mortgage loan comparison among lenders.

More information: Why you shouldn't go to your regular bank for a mortgage

About discount points and closing costs

When shopping for a home loan, it's not enough to merely look for cheap mortgage rates. An unusually low rate can often disguise the fact the loan has other costs built into it that can actually make it more expensive than another loan with a higher rate.

One of the most common ways of doing this is through discount points. Discount points are a way of buying down your mortgage rate by paying an upfront fee. For each point you buy, your rate is reduced by a certain amount, usually one-eighth to one-quarter of a percentage point.  Each point costs one percent of the loan amount.

Discount points are commonly used in mortgage lending and most rate quotes will include at least a fraction of a point. Paying for additional points can be a good strategy if the lower rate you get will offset their cost over the life of the loan. Where they aren't so good is when they're used to hide the true cost of the loan.

Other closing costs can be used by a lender to pad the price of a loan to offset a low mortgage rate. Be wary of so-called "junk fees" that that boost costs but don't pay for any actual services the lender provided or are significantly higher than what other lenders charge for the same thing.

A useful way to compare competing loan offers is through the annual percentage rate (APR). APR expresses the total cost of a mortgage as an interest rate, and by law must be including with any advertisement or offer of a mortgage rate. It's not 100 percent accurate, particularly if you sell or refinance before the loan is paid off, but it's a good rule of thumb.

More information: Mortgage points explained

Finding mortgage rates online

Online lending and mortgage research can make it a lot easier to compare mortgage rates and shop for a home loan.  You can quickly obtain quotes from a number of lenders for their latest mortgage rates and sort through them to find the best deals.

Searching online also gives you access to a wider range of lenders. You can do mortgage rate comparisons with lenders who may not have a brick-and-mortar office in your immediate area but still can originate mortgages there.

There are several ways to search for cheap mortgage rates online. You can go directly to the web pages of various lenders and check the best home loan rates they're offering. They'll usually have their daily mortgage rates listed. Often, a form will be provided where you can submit information about the type of loan you're seeking and your credit profile, so you can obtain a rate quote tailored for you personally.

Another way is to use a rate quote service, such as the one at the top of this page. You submit the information about your credit and the loan you're seeking, but instead of getting a rate quote from a single lender, you get competing quotes from multiple lenders. This allows you to do a mortgage rate comparison among them and choose the best mortgage rate among them.

Make sure that you’re finding home mortgage interest rates specific to your area. You can do this by checking the rate details, which will be available at the top of the page. Also, don't forget to check how many points are included with each rate and what the APR is as well.

Finally, check to see when the information was last updated. If a site isn't showing today's mortgage rates, you know it's outdated and may not be comparable to rates on other sites.

More info: Web tools and tips for homebuyers

That covers shopping for a mortgage. Next, we'll look at the major factors that affect the type of home mortgage rates you can obtain.

Credit score

Your credit score doesn't just determine whether you can qualify for a mortgage or not, it plays a big role in determining the mortgage rate you can get.

A FICO* score of 740 or better is needed to qualify for the lowest mortgage rates on a conventional loan backed by Fannie Mae or Freddie Mac. Those are the most common type of mortgage in the U.S.

On Fannie/Freddie mortgages, borrowers with scores below 740 will pay home loan rates that gradually increase as scores decline. A borrower with a score in the low- to mid-600s may pay a mortgage rate that's about three-quarters of a percent higher than one with "perfect" credit.

FHA mortgage rates aren't tied to credit scores the way Fannie/Freddie rates are, so they're often a good choice for borrowers with so-so credit. The upfront fees on FHA loans are higher, but those are often offset by the better rates borrowers with weaker credit can get through the FHA.

For those eligible, VA home loan interest rates are not tied to credit scores. 

* FICO credit scores are the type most commonly used by lenders. Other credit scores may differ significantly from your FICO score.

More information: How do credit scores affect mortgage interest rates?

Down payment

The size of your down payment can also affect the mortgage rate you pay. Borrowers who choose the 3 percent down option now offered by Fannie Mae or Freddie Mac will pay a slightly higher rate than those who make a larger down payment.

The best mortgage rates are given to borrowers who make a substantial down payment of 30 percent or more, or if they refinance with at least 30 percent equity of more. That's particularly true for borrowers with weaker credit, where a large down payment can offset some of the negative effects of their credit score.

Aside from those situations though, the size of your down payment or amount of home equity won't necessarily affect your mortgage rate, although can vary from lender to lender. However, a down payment of 20 percent or more will allow you to avoid paying for mortgage insurance, which is like shaving half a percentage point or more off your mortgage rate.

More information: How much of a down payment do you need?

Timing

When you take out your loan has a big effect on your mortgage rate. Mortgage rates today may change by tomorrow or even within a few hours, based on market conditions. The lowest mortgage rates you can get today may be higher or lower than the rate you would get a week or a month from now - sometimes considerably so.

To reduce the uncertainty, you can lock in today's mortgage rates when you apply for a loan. That way, if rates rise over the weeks before you close, you still get the rate you locked in.

But what if rates fall? Many lenders have a provision that allows you to re-lock your rate if it drops by a certain amount before you close, often a quarter of a percent. So you're protected in case the market moves lower. But not all lenders do this, so be sure to ask in advance.

More information: Locking in your mortgage rate

Over longer periods of time, mortgage loan rates can change quite a bit. Today's borrowers have become quite accustomed to paying rates of around 4 percent on a 30-year fixed-rate mortgage, which is unusually low by historic standards. Rates of 6-7 percent were the norm just over a decade ago. Borrowers in the early 1980s saw mortgage rates as high as 18 percent!

So don't assume that the rates you'll find next year or a few years down the road will be similar to mortgage rates today. Rates can change in a hurry. That's particularly important to keep in mind if you're thinking about getting an adjustable-rate mortgage (ARM), including most home equity lines of credit (HELOCs).

More information: How does the secondary market affect mortgage rates?

More information: How does the Fed affect mortgage rates?

Fixed vs. adjustable-rate mortgages

There are two types of home mortgage rates available for loans – fixed and adjustable (also called variable). With a fixed-rate mortgage, your mortgage rate never changes. It's locked in for the life of the loan. The same is true for your monthly payment, though property taxes and homeowner's insurance costs may rise.

With an adjustable-rate mortgage (ARM), your rate can fluctuate over the life of the loan. Usually, the rate is fixed for the first few years of the loan and then begins to adjust periodically to reflect current market conditions. Your monthly payments could either rise or fall, depending on what interest rates do.

A fixed-rate mortgage offers predictable costs and protection against the possibility that interest rates may rise. A variable-rate mortgage typically offers lower initial rates, but where they go after that is uncertain. If the economy heats up and inflation kicks in, your rate could rise quite a bit.

A fixed-rate mortgage is generally better for people who expect to stay in their homes for a long time and will benefit from locking in a rate. A adjustable-rate mortgage may be better for people who expect to move or refinance in a few years and will benefit from a lower short-term rate.

More information: What you need to know about ARMs

Length of loan

The length of your loan will affect your home mortgage rate. Mortgages with a longer term carry higher rates than shorter ones do. Home loan rates on 20-year fixed-rate mortages are lower than those on 30-year loans, and rates on 15-year loans are even lower still.

This also applies to ARMs, at least as far as the lock period goes. The initial rate on a variable-rate mortgage that stays fixed for 5 years before adjusting will be lower than an ARM that resets after 7 years, which will be lower than one that adjusts after 10.

The longer a mortgage rate is fixed, the more uncertainty there is for lenders and mortgage investors. Mortgages that pay a fixed rate over 30 years guarantee them a certain return on their money, but there's also the chance they could miss out on higher returns if market rates rise during that time. So they demand a higher rate than they would on a 15- or 20-year loan.

With a variable-rate mortgage, those mortgage lenders and investors know their returns will fluctuate along with market rates, so they're willing to accept a lower initial rate than they would on a fixed-rate loan.

More information: Choosing between a 15- and a 30-year mortgage

Amount you borrow

The amount you borrow also has an effect on home mortgage rates. Borrowers who take out a jumbo mortgage – one that exceeds the "conforming loan limits" set by Fannie Mae, Freddie Mac and the FHA – usually pay a higher mortgage rate than do borrowers who take out conforming loans.

Most of the time, the mortgage loan rates on jumbo loans are about one-quarter to one-half a percent higher than borrowers pay on conforming loans, although that isn't always the case. In recent years, jumbo loan mortgage rates have actually been running a bit lower than conforming mortgage rates, because the borrowers are seen as more financially secure.

You may also end up paying a higher rate on a small mortgage, one under $100,000. Many lenders don't find it worthwhile to do mortgages that small and those that do may charge a premium to do so.

More information: Jumbo loans

Type of property

The sort of home you're buying will affect your mortgage rate as well.  The lowest mortgage rates are given for properties that will be used as your primary residence. Lenders may charge a higher rate for a vacation home or second residence, and demand a larger down payment as well.

Investment property mortgage rates are higher than what you'd pay if you bought the property for use as a primary residence or second home, so bear that in mind if you plan to buy a rental property.

Home classifications can also affect your rates. Condominium mortgage rates typically run a bit higher than on single-family homes. And rates for manufactured home loans - which usually aren't mortgages, since they're considered mobile property -run considerably higher than mortgages for single-family homes.

More information: What's different about getting a condo mortgage?

Where you're buying

You will find that home loan rates vary somewhat from state to state. That's largely due to differences in regulations and the underlying cost of lending among states.

You also may find that you can get lower mortgage rates in more populated areas where there's a lot of competition among lenders than in more remote areas served by fewer lenders. However, with online lending eliminating the need for a brick-and-mortar presence in the area of the property being financed, this is less of an issue than it used to be.

You can use the map below to help you find the lowest mortgage rates in your state.

National Rates

  • 30 yr fixed
  • 3.59
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  • 15 yr fixed
  • 2.79
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  • 5/1 ARM
  • 2.83
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