What is a good interest rate on a home mortgage?

Locking in low mortgage and refinance rates can save you thousands of dollars over the life of your loan. Here’s how you can get a good interest rate on a home loan. (iStock)

When applying for a home loan, one of the most important factors you should pay attention to is your interest rate. Having a lower mortgage interest rate could save you tens of thousands of dollars over the life of your loan. 

Generally, the best time to apply for a mortgage or mortgage refinance is when national interest rates are low. However, the market rate does not always match the rate you could be given once you apply, since personal factors will also come into play. For the past few years, mortgage rates have remained historically low around 3% to 4% for a 30-year fixed-rate mortgage, according to Freddie Mac. However, just 30 years ago, rates were as high as 9% and 10%. 

Getting a good interest rate on your mortgage relies on a variety of factors, but it's important to determine what a good mortgage rate really means. You can explore mortgage rates across multiple lenders on Credible without affecting your credit score. 

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What is a good mortgage rate right now?

Today’s mortgage rates are among some of the lowest they’ve ever been. Ever since the start of the pandemic, the Federal Reserve has been committed to keeping interest rates low for the near future. Current mortgage and refinance rates are: 

  • 2.750% for a 30-year fixed-rate mortgage
  • 2.750% for a 20-year fixed-rate mortgage
  • 2.000% for a 15-year fixed-rate refinance
  • 2.000% for a 15-year fixed-rate refinance

Anything at or below 3% is an excellent mortgage rate. And the lower, your mortgage rate, the more money you can save over the life of the loan.

For example, if you get a $250,000 mortgage with a fixed 2.8% interest rate on a 30-year term, you could be paying around $1,027 per month and $119,805 interest over the life of your loan. If you get that same mortgage but at a rate of 3.8%, you’ll be paying a total of $169,362 in interest over a 30-year repayment term. As you can see, just one percentage point could save you nearly $50,000 in interest payments for your mortgage.

You can check out Credible’s mortgage calculator for your potential monthly mortgage payment, including how much interest you’ll pay.

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What factors determine mortgage interest rates?

There are several factors that can determine your mortgage interest rate. One of the factors that you have little control over is the economy. If people are losing jobs and the economy needs to be stimulated, national mortgage rates might go down. In a growing economy where spending is increasing and more people are buying homes, this can increase the demand for mortgages as well as rates. 

While the Federal Reserve does not actually set mortgage rates, they do set the federal funds rate which is the rate banks charge each other for loans. When the Federal Reserve lowers the federal funds rate, it also pushes down borrowing costs for banks who can then extend those benefits to lenders by offering better mortgage rates. 

Other factors that could impact your individual mortgage interest rate include:

  • Your credit score
  • The types of loans you apply for (conventional loans, VA loans, FHA loans, USDA loans)
  • Where you live and how the housing market is in that area
  • Whether you have a fixed or adjustable-rate mortgage

One of the best things to do when home buying is to compare offers from mortgage lenders and shop around for lower rates. Check out Credible to compare mortgage and refinance rates across multiple lenders. 

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How do you get the best interest rate on a mortgage?

If you’re looking to get the mortgage and refinance rates, here are some helpful steps you can take. 

1. Check your credit

It’s best to always check and review your credit before applying for mortgage loans to see where you stand, since it can be difficult to qualify for lower rates with bad credit. Visit AnnualCreditReport.com to get a free detailed copy of your credit report from all three major credit bureaus. Sometimes, even your credit card companies may provide you with a free FICO score.

2. Improve your credit

Once you’ve checked your credit, see if you can improve your score to ensure you get a lower interest rate on your mortgage. This may involve paying off debt, lowering your credit card spending, or waiting until certain credit inquiries or negative marks fall off your report.

3. Shop around

Realize that lenders often set their own mortgage rates and might compete with each other. This is why it’s important to shop around and get pre-approved so you can compare current mortgage rates across multiple lenders and see the best rate you qualify for. Visit an online mortgage broker like Credible to get personalized rates within 3 minutes without affecting your credit score. 

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4. Consider making a large down payment

Saving a little extra for your home doesn’t hurt anyone.  While you can certainly get a mortgage without putting 20% down, lenders might see a very small down payment as risky which could lead them to give you a higher interest rate and mortgage payment due to private mortgage insurance (PMI). Talk to your lender in advance to see if they would lower your interest rate if you made a higher down payment. 

5. Consider a shorter term

While the 30-year term is standard, shorter mortgage repayment terms like 20 years or 15 years may come with a lower interest rate automatically. If you can afford a higher monthly mortgage payment, you’ll save tons in interest and even pay your mortgage off quicker.

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Next steps 

While interest rates are important, this isn’t the only thing to consider when getting a mortgage. Keep in mind that there are other requirements and fees such as closing costs that could impact how much you spend. Be sure to visit Credible to learn more about current mortgage rates and get in touch with an experienced loan officer who can answer all your mortgage questions.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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