Finding the Lowest Mortgage Interest Rate

Finding the lowest mortgage rate helps save money & improve finances. Read tips on finding the lowest mortgage interest rate available to you today.

Finding the lowest mortgage interest rate helps you save money and improve your financial flexibility long-term. Great rates are available online, but how do you know which one is best? Using a mortgage rate calculator helps you understand what monthly mortgage payment amounts are affordable. Making the best personal choices prior to searching for rates also helps you qualify for lower rates.                             

New home buyers and current homeowners looking to refinance both have similar qualification requirements, but also some differences between them. Popular rate comparison sites help U.S. residents find the best rates available on the market in 2021. Read ahead for tips on finding the lowest mortgage interest rate available today.

Make the Best Personal Choices

Sometimes getting the best mortgage rate is not about company policies, mortgage types or comparison-shopping. These elements still play roles in the annual percentage rate (APR) you are offered, but making the best personal choices leading up to your mortgage application might have even more influence. What types of personal choices affect your mortgage rate?

Your credit score, income and assets all affect the rate you qualify for on your mortgage. Your credit (FICO) score is the primary influence on interest rates offered. If you do not know your credit score it is possible to find out using the Annual website. Improve your FICO score by paying off old debts, closing unnecessary accounts and removing erroneous negative reports. Maintaining steady employment and a consistently verifiable income for several years leading up to your mortgage application is important. Doing so also indicates creditworthiness to lenders.

Saving money for a sizable down payment also helps get you the lowest APR available. The more money you put down toward your mortgage, the lower your APR will likely be. Finally, while more of a business decision than it is a personal choice, it is advisable to pursue a fifteen-year fixed-rate mortgage if possible. APRs on fifteen-year mortgages tend to be lower. 

Using a Mortgage Rate Calculator

A mortgage rate calculator estimates your total monthly house payment including principal, interest, taxes and homeowners insurance (PITI). Using a mortgage rate calculator requires entering various figures and information regarding your loan. Start by entering the purchase price of your home. Next, enter your down payment amount. Your loan term (length of time until fully repaid) is entered next. The APR is entered after the loan term, followed by the amount of required property taxes. The cost of your homeowners insurance is entered, followed finally by any applicable homeowners association (HOA) fees. A mortgage rate calculator guides you exactly where and when to enter all the data. Changing variables gives different outcomes, which help you best understand what range of mortgage rates you are able to afford and accept.                                   

Understand the Types of Mortgages

Different types of mortgages carry varied levels of APRs. Understanding the type of mortgage you are dealing with helps you better understand the best rate options available to you. A prime mortgage is most commonly offered to prime borrowers. Lenders consider prime borrowers to be the least risky of prospective customers and therefore offer them lower APRs. FICO scores of 670 or higher are usually required to qualify for a prime mortgage rate. Prime mortgages also satisfy all Fannie Mae/Freddie Mac mortgage quality standards. 

Borrowers with FICO scores ranging from 580-669 qualify for subprime mortgages, although case-by-case exceptions apply. Subprime mortgages are further divided into several subcategories. The adjustable-rate mortgage (ARM) is the most common subprime mortgage available today. ARMs start at a fixed rate then adjust to a variable (floating) rate after a specific period of time. This type of mortgage costs more to borrowers in the end even when the original fixed rate is low. 

Alt-A mortgages require less documentation to prove your income, applicable assets and debt-to-income ratio (expenses). Alt-A loans typically work for borrowers with a 700+ FICO score and high, albeit unverifiable income. These mortgages create risks for borrowers and lenders alike because information is easily falsified due to lax verification processes. Benefits include lower down payments and debt-to-income ratio flexibility.                                 

New Home Purchase or Refinance?

Mortgage interest rates are also affected by whether you are purchasing a home or refinancing the mortgage on one you already own. The housing/financial markets both fluctuate, and lower rates are sometimes offered on origination loans than those funded for refinances. Opposite logic would presumably be applied due to refinance customers having equity in their homes. The COVID-19 pandemic did approximately six billion dollars in damage to Fannie Mae and Freddie Mac-supported home mortgage lenders, however. Therefore a new half-percent adverse market fee was assessed to conventional mortgage loan refinances starting on December 1, 2020. 

For example, the average mortgage rates near the end of March 2020 ranged from 2.69 percent to 5.06 percent for a 15-year fixed through a 7/1 ARM respectively. Comparatively, a 15-year fixed refinance mortgage has an APR of 3.03 percent rate and a 7/1 ARM refinance has a 5.27 percent rate. It is important to note how rates fluctuate daily, which is why top rate comparison sites are both helpful and popular with consumers.

Popular Rate Comparison Sites

Comparison-shopping is one of the best ways to find the lowest mortgage interest rate available to you. Popular online rate comparison sites are available to help. Not only are you able to use these sites to locate the best rates for you, you might also get your lender of choice to price-match lower rates offered by its competitors. Some of the most popular rate comparisons sites for 2021 include: