When looking for a home loan, finding the best mortgage interest rates can be overwhelming. Your rate affects how much home you can afford and the size of your monthly payments, so it’s essential that you shop around and receive personalized estimates from several lenders.
Mortgage rates are determined by a variety of factors, including the current federal funds rate (a short-term rate set by the Fed) and your qualifications. Each lender evaluates these factors differently, so make sure you work with one that offers you the most advantageous rate for your situation.
When searching for a home mortgage, an improved interest rate can save you thousands of dollars over the course of your loan. Here are some tips to get the best interest rates:
Shop Around with Three to Five Lenders
Homeowners who shop around for their loans often find lower mortgage rates and larger savings than borrowers who only apply with one or two lenders. In fact, Freddie Mac reports that homeowners who get rate quotes from at least one additional lender on average save $1,500 over the life of their mortgage, while those who get more than five rate quotes can save as much as $3,000.
Pay for Points
By adding mortgage points to your loan, you can reduce the interest rate by a nominal amount. These points may be worth up to 1% of the loan amount and could reduce monthly payments by hundreds or even thousands of dollars.
Make a Large Down Payment
Making a larger down payment can reduce your monthly mortgage payment and boost the overall value of your loan. Typically, lenders offer lower interest rates to buyers who put down at least 20 percent of the purchase price as their deposit.
Raise Your Credit Score
A borrower’s credit score, typically between 500 and 850, plays an important role in determining mortgage interest rates. It evaluates their history of debt management and repayment. By improving your credit score, you could qualify for lower rates and gain access to more loan options.
Avoid Applying for Multiple Mortgages at Once
It isn’t wise to apply for multiple mortgages at once, as this could hurt your credit. Instead, pull your report and take a close look at your credit history before reaching out to any mortgage lenders. Doing this helps protect your credit and ensures you’re getting competitive rates based on personal financial profile.
Check Your APR
Your basic interest rate may be the most visible cost of borrowing, but there are other expenses that may not be immediately obvious. Your annual percentage rate (APR) takes into account all those fees and amortizes them over the life of your mortgage loan.
APR (Annual Percentage Rate) gives a more precise calculation of what you’ll pay than just your basic interest rate, making it an integral component in the mortgage shopping process. Our Mortgages Rate Tool makes this comparison easy by offering rates for all major loan types and amounts across many lenders.