6 ways to get a lower mortgage rate in today's market
While it was only a few years ago, mortgage interest rates during the height of the pandemic hovered around 2% to 3%, giving buyers a historic opportunity to borrow at a low rate. But as the pandemic subsided and inflation rose, interest rates rose alongside it. This reached a decades-long high earlier this month, with the average mortgage interest rate for a 30-year loan at 7.31% — the highest since 2000.
With interest rates that high — and the forecast for relief uncertain — it's easy to see why many prospective buyers have decided to sit on the sidelines. Lower-than-usual housing inventory has also played a significant part. That said, while the record-low rates of 2020 and 2021 are unlikely to return any time soon, there are still some reliable ways buyers can get a lower rate in today's market.
Start by exploring rates and terms here now to see what you're eligible for.
6 ways to get a lower mortgage rate in today's market
Here are six effective ways buyers can get the lowest rate available in today's market.
Improve your credit score
The best rates and terms will always be reserved for borrowers with the highest credit scores and cleanest credit histories. So don't apply until you've done all you can to improve your score. This means paying off outstanding debts, not applying for new credit and paying your existing bills on time (or early).
But it also means requesting a copy of your credit report to review for any errors or inconsistencies. Those issues will be seen by a lender once you've submitted your application, so be sure to review it in advance.
Shop around for lenders
While most lenders will offer you the same approximate rate, every point (and tenth of a point) counts. Shop around, then, for lenders to see which one will offer you the very lowest rate. Consider speaking to at least three different lenders to see which one is the best for you. Just make sure to do your research all within the same time window, as rates change on a daily basis and that could result in a skewed view of a particular lender's rates.
Check rates and lenders here now.
Consider an adjustable-rate mortgage
An adjustable-rate mortgage isn't for everyone, and many would recommend approaching it cautiously. But if you're looking for a way to get the lowest rate possible in today's market, you may have to pursue this type of loan.
Adjustable-rate mortgages are exactly what their name implies: mortgage loans with an adjustable rate. This means getting a rate that's slightly lower than what can currently be secured with a fixed rate, with the understanding that the rate you get now will change in the future (and is likely to increase over time). This may not be the best way to get a lower rate now, but it could still be worth it if your long-term plan is to refinance into a more manageable fixed rate in the future.
Buy mortgage points
Mortgage points act as a fee a lender charges borrowers to obtain a lower rate than what's available without it (think 6.75% with points versus 7% without them in today's rate environment). This fee can then be paid upfront at closing or added to the overall mortgage loan.
If your goal is to get the lowest interest rate possible now, then mortgage points can help accomplish that. But if you're not planning on staying in the home long enough to break even on the mortgage points cost — or if you're planning on refinancing to a lower rate in the near future — it may not be worth it for you.
Lock in a rate
It may seem counterintuitive to lock in a 7% mortgage rate now, considering how much lower they were just a few years ago. But with the rate environment unpredictable and inflation not yet as low as the Federal Reserve is aiming for, additional rate hikes are likely for later this year and possibly into 2024.
Today's high 7% rate could be tomorrow's low 7% rate when compared to the rate at that time. So strongly consider locking in a rate now and hope to secure a lower one in the future.
Check rates here now to see what you may be able to lock in.
Make a large down payment
The more you put down toward your mortgage purchase, the better rate you'll generally be able to get. So crunch the numbers to see if there's any wiggle room to add additional funding to your down payment.
At a minimum, aim for at least 20% of the purchase price. Without it, you'll get stuck paying private mortgage insurance (PMI) on top of the already elevated interest rate.
The bottom line
While none of the above six strategies will magically cause 3% mortgage rates to reappear, they will still help you secure a lower mortgage rate than you otherwise would have been offered. So make sure to improve your credit score (and check your credit report). Also do your due diligence by shopping for lenders. And consider both an adjustable-rate mortgage and the purchase of mortgage points. Finally, don't be afraid to lock in a rate now — and try to make as big a down payment as possible.
