How to Find a Good Mortgage Rate
Everyone wants the lowest possible mortgage rate. But what is good business? And how do you know you're getting the best rate available?
The first question is difficult to answer because a "good" rate is different for everyone. On the same day, it could be 2.75% for one borrower and 3.25% for another.
But the second question – how to find your best price – is simple.
All you have to do is check with a few different lenders. Their estimates show you what a good price looks like for your unique situation.
Find Your Lowest Mortgage Rate (May 26, 2021)
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What is a Good Mortgage Rate Today?
Mortgage rates are constantly changing. So a good mortgage rate could look drastically different from day to day.
During the first half of 2021, the best mortgage rates were around 2%. A “good” mortgage rate was between 3% and 3.25%.
Of course, these numbers vary greatly from borrower to borrower, as we explain below.
Top tier borrowers could see mortgage rates in the 2.5% to 3% range, while lower credit borrowers could see interest rates in the 3% to 4% range.
Looking ahead to 2021, interest rates are also likely to rise. So a good mortgage rate could be much higher later this year than it is today.
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“Good” mortgage rates look different for everyone
What is a good mortgage rate? That is a difficult question. Because many of the interest rates you see advertised are only available to “top tier” borrowers: those with high credit scores, low debt, and very stable finances. Not everyone falls into this category.
Of course, you can look at the average mortgage rates. But how reliable are these as a guide?
On the day this was written, Freddie Mac's average weekly interest rate on a 30-year fixed-rate mortgage was 3%. However, the daily equivalent on the Mortgage News Daily website was 3.16%.
How do you navigate the world of mortgage rates?
The trick is knowing what a good mortgage rate looks like for you. And that depends on a few different factors, including:
How strong your finances are – Lenders check your credit score, down payment, existing debt load and the consistency of your income. A credit score above 720 and a 20% down payment will usually get you the best rates, but you can qualify for a home loan with far lessWhich Mortgage Lender Do You Choose? – Only when you shop and receive interest rate quotes from multiple lenders can you be sure you are getting the best possible dealWhat kind of mortgage would you like – Each type of mortgage has a different average rate: conventional, compliant, FHA, VA, USDA, and jumbo loansYour loan term – The term of your loan also makes a difference. Short-term loans (such as a 15-year mortgage) tend to have lower interest rates than 30-year loans The purpose of your loan – You will likely pay a slightly higher interest rate to refinance your existing loan than you would if you were buying a home
Of course, there are many variables that will affect your interest rate. What is an attractive rate to one borrower may be way too high for another.
And all lenders weigh these factors differently. So if you make the same application with three different lenders, you will most likely get three different rates and fees.
This is why experts say it is so important to look at your tariff. There is no way of knowing what a good mortgage rate will look like until you have compared your options.
Find Your Lowest Mortgage Rate (May 26, 2021)
Credit score and mortgage rates
Your creditworthiness is one of the most important factors in determining your mortgage rate, especially if you are using a traditional loan.
FICO has a tool for estimating mortgage rates based on credit and showing how much of the difference your score can make to your interest rate.
Here are the estimates of the FICO Annual Percentage (APR) for various credit levels as of April 21, 2021:
Credit score range30 year mortgage APR *620-6394.241% 660-6793.265% 760-8502.652%
* Mortgage rates are based on national averages and are estimated by myFICO.com. Your own interest rate will be different
What's that in dollars?
Over a 30 year period, someone with the lowest of these APRs would pay interest of around $ 90,000. But someone with a score in the 620-639 range would pay closer to $ 153,800. So what might look like a relatively small price difference over time can translate into huge savings.
Remember, FICO only looks at the difference your credit score makes.
In the real world, lenders also decide your interest rate based on the other factors mentioned above: mostly your down payment, existing debts, and stability of your income.
Current mortgage rates can be deceiving
It's important to understand that "shopping" means actually applying to multiple lenders and receiving personalized offers. It doesn't mean simply searching online and selecting the lender with the lowest rates advertised.
Why? Because lenders tend to base their advertised rates on "ideal" borrowers. They also often come with discount points that lower your interest rate but increase your upfront fees.
So, unless you have a large balance, large down payment, and additional closing costs, the prices listed probably don't apply to you.
The same applies to average prices. By definition, some borrowers qualify for lower interest rates, while others qualify for higher rates. What you are offered depends on your situation and your personal finances.
Here's an inside tip when comparing mortgage rates: Lenders often quote interest rates based on the assumption that you will buy rebate points.
These rebate points are an additional sum that you can pay upon completion to lower your mortgage rate a little.
Often times, you will pay 1% of the loan amount to lower your interest rate by around 0.25%. For a $ 200,000 loan, you might pay $ 2,000 to reduce your 3% installment offer to 2.75%.
There is nothing wrong with these points (assuming you have the free money), and they are often a good idea. Comparing a quoted price that assumes you are buying discount points with one that does not make the same assumption is like comparing apples to oranges. You will not get a fair answer.
How To Find The Best Mortgage Rate For You
Different lenders will look at your financial situation in different ways.
For example, a lender who specializes in FHA loans (home loans supported by the Federal Housing Administration) will rarely raise an eyebrow if your credit score is in the 580-620 range. But one aimed at superprime borrowers likely won't give you the time of day.
Ideally, you want a mortgage lender who is used to dealing with people who are financially similar to you.
But how do you know which ones they are? You may get guidance from a lender's website. But in the end you can't really be sure
Compare the credit estimates
The only way to find out is to seek quotes from multiple lenders (officially known as credit estimates). It does not take long. And the amount you can save can easily add up to thousands of dollars.
Don't worry about your credit score when comparing prices.
Assuming you submit all of your loan applications within a certain amount of time (one month or less), your score for 10 applications should be the same as for one. This is because scoring technologies take into account shopping interest rates on certain types of loans, including home loans.
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Negotiate with Lenders
For every loan application you fill out, you will receive an offer. Nowadays, all of these have the same standard format – the credit estimate – so they can be easily compared side by side.
You don't have to stop by picking the lowest offer, however. You are always free to ask for better conditions.
Playing one lender against another can be a good tactic. You might be able to lower your interest rate or closing costs by making a better offer to your preferred lender and asking them to adjust it.
Look at the interest rate and the annual percentage rate
Most borrowers tend to focus on mortgage rates. But the APR you pay on a loan is often the same or even more important than the base rate. And that goes for mortgages too.
An APR examines all of your borrowing costs (including interest) and spreads them out over the potential term of your loan. So APRs are higher than pure rates. And they can tell you what you will actually pay for.
Just keep in mind that APR assumes you will keep your loan for life, which most borrowers don't. You sell or refinance before the mortgage term expires.
So take a look at APR, but don't always take it as a gospel. In this article, you will learn more about how to compare interest rates and APR effectively.
Look out for mortgage insurance
If your down payment is less than 20% of the purchase price, you will usually need to take out mortgage insurance. And these rewards can significantly increase your monthly payments.
The cost of mortgage insurance is reflected in your APR, but not in your interest rate. So, before you take out a loan, find out about the costs and benefits of mortgage insurance.
Strategies To Get A Lower Interest Rate
Here is a roundup of the best strategies to get a lower interest rate and save on your mortgage loan:
Choose the type of mortgage that best suits your needs. Your Loan Officer Can Help You Decide The First Five Years of Your LoanNegotiate – Don't be afraid to ask lenders for better interest rates or lower fees. Buy discount points when you can conveniently afford them
And if you have time before buying or refinancing:
Increase Your Credit Score before you applyReduce Your Debt before you applySave a larger deposit – The higher your down payment, the lower your mortgage rate is likely to be
There is only so much you can do with the last three. Few of us could save more while paying off debts at the same time.
However, prioritize areas where you think you, the borrower, have the most leeway to grow. And just do what you can. Because even a little can sometimes help a lot.
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