In this article
- Finding the Best Mortgage Rate
- What’s a good mortgage rate today?
- Current Mortgage Rate Trends
- Take The Opportunity To Find Your Lowest Rate Now, Before Rates Rise.
- Navigating The World Of Mortgage Rates
- Credit Score And Mortgage Rates
- What’s that in dollars?
- Current Mortgage Rates Can Be Deceptive
- A Note On Discount Points
- How To Find The Best Mortgage Rate For You
- Compare Loan Estimates
- Look At An Interest Rate And APR
- Pay Attention To Mortgage Insurance
- Mortgage Rates FAQ
- What’s a good mortgage rate in 2022?
- Is 3.25 a good mortgage rate?
- Is 2.875 a good mortgage rate?
- What is a good APR on a 30-year mortgage?
- Is it better to have a lower interest rate or APR?
Finding the Best Mortgage Rate
Read on to discover how to find the best mortgage rate for you…
Everyone is looking to get the lowest mortgage possible but how exactly does one go about performing this small miracle? What does a “good mortgage” even look like? And how are you supposed to know if you have found one?
These are difficult questions to answer because a ”good mortgage” for one person is different from a “good mortgage “ for another person. The answer could be 3.25% for one buyer, but 4.25% for another buyer on the very same day.
The most important question is how to find the best rate for you. The process involves speaking with a few lenders and getting their estimates. The average rates you calculate are what a “good mortgage” will look like for you.
What’s a good mortgage rate today?
Mortgage rates are constantly changing. So, you will find considerable differences between what you find available today and what is available tomorrow. For example, at the time of writing, a good mortgage rate for a 15-year term would be about somewhere high in the 2% margin. For a 30-year term, you will be looking at the 3% margin.
At the time of writing — March 2022—, thirty year fixed mortgage rates were drifting around 4% according to a figure in the Freddie Mac weekly survey. You would have to be very lucky and also an especially strong borrower to expect anything at 3% or lower in the markets today.
As mentioned, these figures can vary greatly from person to person. We will get into this in more detail presently.
Top–tier borrowers may enjoy mortgage rates in the high 2% range on the very same day that a lower-credit borrower would be lucky to find something at 4%. Additionally, the prognostic for 2022 dictates that the interest rates are set to rise. So, a good rate right now could be very low to what you will find later in the year.
Current Mortgage Rate Trends
The mortgage rate that will be offered to you is largely based on your financial record. The various details that go into this offer will be explained below. But overall, you can expect mortgage rates to be tailored to your specific situation.
The mortgage rates have been at a moderately low level for many months. This has allowed the most qualified and strong borrowers to make use of historically low rates. But these rates have been set to rise shortly.
No one can be certain for sure, but most experts, —including Freddie Mac and Fannie Mae— expect that these rates will rise throughout 2022.
Take The Opportunity To Find Your Lowest Rate Now, Before Rates Rise.
“Good” mortgage rates are different for everyone
What is a good mortgage rate? This is not an easy question to answer as the best rate for one person could be very different for the next— even on the same day. You will also find that the rates you see being advertised are often the rights they are offering to a very select portion of top-quality borrowers. These are those with very high credit scores, no debts, and stable financial plans. As you may imagine, not everyone falls into this category.
One place to look for an idea of what you can expect to pay will be to examine the average mortgage rates being offered. At the time of writing —March 1, 2022— Freddie Mac reports the average fixed-rate mortgage for a 30-year term to be 3.89%. On the other hand, the equivalent from the Mortgage Reports survey says 3.954%. So, there is even some debate about what average looks like.
Navigating The World Of Mortgage Rates
The most important thing to know will be what a good mortgage rate will look like in your situation. And this will be determined by a variety of factors.
1. How strong your finances are – lenders will be very interested in your financial situation, especially your credit score and your existing debt. A strong and consistent income is also a good sign. You will find the best rates go to those with a credit score higher than 720 and make a down payment of 20%. Nevertheless, you will qualify for a mortgage with much less than this.
2. Which mortgage lender you choose – the best way to find a good lender will be to begin shopping around and collecting quotes, then you will be able to compare the numbers and decide who is giving you the best rates.
3. What type of mortgage do you want – each type of loan will come with a different type of average rate, this could be conventional or conforming as well as FHA, USDA, VA, or Jumbo loans. Adjustable-rate mortgages typically have a lower interest rate than 30-year loans.
4. Your loan term – the length of your loan term is also going to affect your rate. If you can take on larger payments and complete the term in a shorter time, you can enjoy a better rate as well.
5. Your loan’s purpose – rates are also different depending on the reason for the loan. For example, you will find higher rates on cash-out refinance loans than on no-cash-out refinance loans.
As you can see, many variables will affect the final rates you will be offered and what would be a ‘good’ rate for you. What is an attractive rate for one borrower may be a very bad rate for another.
Furthermore, all the lenders you find will weigh these matters differently and will produce different offers according to their assessments. Therefore, it is a good idea to get a few different quotes and look carefully at the factors they apply when producing their offers.
The experts never tire of emphasizing the importance of shopping around if you hope to get the best rates for your mortgage. You can’t know what they will offer you until you shop around and see what they say.
Credit Score And Mortgage Rates
Your credit score is one of the most important factors that will determine the mortgage rate you are offered. This is especially true if you will be taking out a conventional loan. FICO provides a tool that can be used for estimating your mortgage rate based on your credit score. This just shows how important that credit score is when shopping for a good mortgage rate.
Your credit score is one of the biggest factors in determining your mortgage rate, especially if you use a conventional loan.
FICO has a tool to estimate mortgage rates based on credit, and it shows how big a difference your score can make when it comes to your interest rate.
*Mortgage rates are based on the national average and taken from information found at myFICO.com. You may find differences when you are examining the same information, but this does provide a rough idea of what to expect.
What’s that in dollars?
But what does this mean when it comes down to the dollars in your pocket? Well, let’s imagine you want to take out a 30-year fixed-rate loan for a $300,000 mortgage and 5% down.
Someone with the very least of these APR categories will pay about $181,240 in interest alone over the term. On the other hand, someone in a higher bracket, with a score of about 620-639, will enjoy a total interest payment of about $277,440 for the same price of the home. As you can see, a fairly small amount of cash over a long period becomes a very large amount of cash.
But there are other factors besides your credit score to consider:
Remember, FICO is only looking at the difference that your credit score will make to your estimated mortgage rating. But the lenders will be looking at another thing when they make their offer. They will ask for a list of information to help them make their assessment including:
• Debt-to-income ratio (DTI) – this is the ratio of your home income that goes to paying your debts.
• Income stability – your lender will ask to see your W-2 Forms or pay stubs to show that you are collecting an income that will help you make payments. If you are self-employed, you could show bank statements or tax forms
• Down payment – most loans will require a minimum down payment. You also have the option to place more than the minimum down which could considerably improve your interest rate.
• Home equity for refinancing – mortgage refinance lenders will check your home equity, which is the amount that the value of your home exceeds your mortgage debt. The better the equity, the lower the interest rate.
In short, the better your financial records look, the happier your lender will be to provide you with a comfortably low-interest rate. Taking steps to improve your financial presentation is a great way to get better rates.
Current Mortgage Rates Can Be Deceptive
When it comes to your shopping around it is important to be clear on what this means. Shopping around means contacting a variety of lenders and getting personalized quotes for your exact situation. It does not mean Googling “mortgage rates near me” and comparing quotes being advertised.
This is because the rates being publicized by mortgage providers are typically the rates they are offering their highest-quality clients, those strong borrowers with immaculate credit history making massive down payments.
The point is, you can’t always count on being eligible for the “incredible” rates being marketed unless you have excellent credit and are prepared to make an especially large down payment. Then you will still be facing unexpected closing costs if you want the rates advertised. In the end, you need to know what is being offered to you specifically.
A Note On Discount Points
Now for an important insider tip that can be a considerable advantage: most lenders advertise the rates you see under the assumption that their clients will buy discount points. This is a little extra payment a borrower can make to shave some points off their mortgage rate.
This is how it works. You can pay 1% of your loan to reduce your mortgage rate by 0.25%. So, the discount point on a $200,000 mortgage loan will cost $2,000 and reduce your 3% rate to a sweet 2.75% rate. As you can imagine this can count for a considerable advantage if you have the cash to make this payment. So, go right ahead if you can, but expect to get those enticing rates being advertised without these discount points.
How To Find The Best Mortgage Rate For You
Different lenders will examine the specific details of your situation in different ways. Some lenders specialize in FHA loans, which are backed by the Federal Housing Administration. These guys will hardly raise an eyebrow if you have a credit down in the 580-620 range. But a lender that caters exclusively to the strong buyer, will not look so lightly.
Ideally, you will want a lender that is used to dealing with people just like you and offering deals catered precisely to your needs. Here are some of the best ways to find this perfect match
Here’s how this can be accomplished
Compare Loan Estimates
The best way to do this is to begin collecting recommendations and contact information for lenders that seem suitable to you. Then fill out the forms they provide so they get back to you with a quote. These are free services and only cost a bit of time. But it is well worth the investment as it can help familiarize you with the process and provide you with insights that can prove valuable in finding the perfect mortgage for you.
You will get a quote from different lenders for each loan application you fill out. These all come in the same “Loan Estimate” format which makes comparing apples to apples and oranges to oranges easy.
But don’t just jump at the lowest quote, make sure you fully understand the terms being offered to you. You can even ask them to sweeten the deal.
Look At An Interest Rate And APR
Most borrowers are focused on interest rates and this is important. But the APR that you will pay on this loan is just as important or even more important than that basic interest rate.
The annual percentage rate takes all the costs of borrowing the cash and spreads them out across the lifetime of your loan. But the APR can tell you a lot about what you are paying for this loan.
You must remember that the APR assumes that you will be abiding by the terms of the contract and loan plan until the end of the term. Most borrowers do not do this, typically they will sell or refinance before the mortgage term ends.
So, compare APR, but also remember that this is not all you will pay. You can find more information on how to compare APR to interest rates here.
Pay Attention To Mortgage Insurance
If your down payment amounts to less than 20% purchase price you will be invited to take out private mortgage insurance, PMI. These premiums can make your monthly payments considerably higher than expected.
The cost of your mortgage insurance will be reflected in your APR, but not in the interest rates. Before you take out mortgage insurance it is important to understand what you will be buying.
To recap: here are some of the strategies that can help you get the best interest rate.
1. Consider the type of mortgage that suits your needs best. A loan officer can guide you if needed.
2. Shop around for the best deals. This could save you thousands.
3. Compare mortgage Loan Estimates. Pay attention to APR the final costs you pay in the first five years of your loan.
4. Negotiate. Don’t be shy about asking lenders for better rates and lower fees.
5. Buy discount points. They are well worth the cost.
And, if you have time:
• Boost your credit score before applying for a loan
• Reduce debts too
• Save for a bigger down payment. If you can manage a higher down payment, you will be able to drop the interest rate down as well.
If you have managed to address those last three, then there is little more that can be done. Not many of us can save more as we are paying off debts. But if you can manage you will be thankful you did.
Get the most bang for your buck by prioritizing the areas where you can improve your position as a borrower and place your resources and efforts there. Then just do what you can after this, even a little bit of difference will go a long way.
Mortgage Rates FAQ
What’s a good mortgage rate in 2022?
Mortgage rates have been on a slow and steady rise, but the strongest borrowers will still find decent rates for 30-year (around 3.5%) and 15-year loan terms. The mortgage rate that will be best for you will be determined by your credit profile, income, amount of down payment, and other factors. Even the loan term will change the rate. Shorter terms generally have lower rates.
Is 3.25 a good mortgage rate?
Since the advent of the COVID-19 pandemic, mortgage rates have dropped very low. This means that even the most under-qualified borrowers were getting rates of 3.25% and in many cases lower than this. But the rates have been on the rise and homeowners who can still get those 3% rates are in a great position. Today, a 3.25% interest rate is considered very low and it is only a fraction of what mortgages have been paid throughout history.
Is 2.875 a good mortgage rate?
That would be considered a very low-interest rate and a credit to your financial stability. This figure is only a fraction higher than the lowest rates ever recorded.
What is a good APR on a 30-year mortgage?
The best APRs are a lot like the best interest rates. The Annual Percentage Rating includes the mortgage interest rate as well as other additional costs like discount points and mortgage insurance. If you don’t see a discernible gap in your APR and interest rates, your fees are very high.
Is it better to have a lower interest rate or APR?
This answer depends on how long you plan to keep your loan. APR measures the total costs of borrowing over the lifetime of the loan, if you pay the loan off early you will not have to face such a scathing APR.