How to Get the Best Mortgage Rate

There’s a lot to learn when you’re preparing to buy a home.

First, you’ll need to understand market values to avoid paying too much for your house. In addition, home inspections are vital to uncover any hidden issues before finalizing a purchase.

Furthermore, potential buyers must pay attention to closing costs, ensuring they have sufficient funds for the transaction. Lastly, perhaps the most critical aspect to keep in mind is being aware of current mortgage rates.

For those in the market for a house, even a minor adjustment in the interest rate can substantially change your financial picture and affect how much house you can afford.

This guide will shine a light on the intricacies of securing the best mortgage rate, which could translate into significant savings throughout the life of the loan. A lower rate may even allow you to afford a nicer home for your money.

family moving into new home

Key Takeaways

  • Improving your credit score, increasing your down payment, and considering mortgage points can significantly lower your mortgage rate and save you money over the life of your loan.
  • Comparing multiple lenders, understanding market conditions, and leveraging first-time homebuyer programs can help you secure the best possible mortgage rate for your financial situation.
  • Negotiating your mortgage rate and choosing the right loan term are essential steps to ensure you get the most favorable terms and minimize your long-term costs.

Step 1: Boost Your Credit Score

A top-tier credit score can secure the most favorable mortgage rates. But what factors make up your credit scores? And how can you boost yours in a hurry?

  • Timely bill payments: The foundation of a solid credit score, accounting for 35% of your FICO score. Paying your credit card bills and monthly debt payments on time, consistently, boosts your credit scores. On the other hand, missed or late payments reduce your score, and can remain on your credit report for up to seven years, making it harder to get a good interest rate.
  • Credit card balances: Having credit cards helps you build credit, which can increase your FICO score. But maintaining a balance lowers it. Aim to keep your utilization ratio, which is the balance in relation to your credit limit, below 30%. An even better practice is paying off the balance in full every month.
  • Avoid excessive inquiries: Every time you apply for credit, a ‘hard inquiry‘ is placed on your report. Multiple hard inquiries in a short period can indicate risk to potential mortgage lenders, slightly dropping your score with each one. There’s one caveat here: Inquiries for the same loan type (such as a mortgage or car loan) within a few weeks of each other are counted as one inquiry. The credit bureaus understand you are shopping around for the lowest rates.
  • Check your credit reports regularly: Make it a practice to review your credit report from all three bureaus annually. This can help you spot and rectify errors or discrepancies which, left unaddressed, could reduce your credit scores.

Remember, in the eyes of lenders, a higher credit score depicts financial responsibility. Achieving this can translate to potentially thousands saved in interest over the life of your mortgage loan.

Step 2: Increase Your Down Payment

The down payment is more than just the initial chunk of money you put toward your home; it’s a reflection of your commitment to the property. The amount you put down influences how mortgage lenders perceive your loan’s risk.

Take a look at some of the advantages of putting 20% or more down.

  • Less borrowing: The more you pay upfront, the less you’ll need to borrow. This reduces your loan-to-value ratio, which can make you a more attractive borrower to lenders.
  • Lower rates: Lenders often associate higher down payments with lower risk. A borrower who can afford a larger down payment is seen as more financially stable, thus possibly qualifying for a lower interest rate.
  • Avoid private mortgage insurance (PMI): Typically, if you put down less than 20% on a conventional loan, you’ll be required to pay PMI. This insurance protects the lender if you default on your loan. By increasing your down payment to 20% or more, you can bypass this additional cost.
  • Future financial flexibility: By paying more upfront, your monthly mortgage payments will be lower, offering you greater financial flexibility in the future. This can be particularly beneficial during unforeseen financial hardships.

While it may be tempting to jump into homeownership with a smaller down payment, putting at least 20% down can lead to substantial savings in the long run and a more favorable loan structure.

Step 3: Consider Buying Mortgage Points

The strategic purchase of mortgage points, also known as discount points, serves as an effective mechanism to lower your mortgage rate. Let’s explore how they work.

What are mortgage points?

A discount point is a form of prepaid interest. One point typically equates to 1% of your loan amount and can decrease your interest rate by a certain percentage, usually around 0.25%.

Should you buy points?

Points can be a costly upfront expense at closing time. It’s important to decide if the future benefits justify the investment. Ask yourself:

  • How long do you plan to live in the house?
  • How much will you save on your monthly payment?
  • How long will it take to break even on the cost of the points?

Your mortgage lender can help you calculate whether buying points makes sense for you. They can provide a breakdown of the costs and savings associated with purchasing points, offering a clearer picture of the potential benefits.

Step 4: Choose the Right Loan Term

Your loan term is more than just a deadline for repaying your mortgage; it determines your interest rate and monthly mortgage payment.

Generally, shorter-term loans, like a 15-year fixed rate mortgage, come with lower interest rates than longer-term ones, like a 30-year mortgage. The reason is simple: lenders face less risk when the borrowed amount is to be repaid over a shorter period.

However, with a shorter term, you’ll have higher monthly payments, since you’re dividing your total mortgage amount over fewer months. You’ll need to balance the allure of a lower rate against the practicality of larger monthly payments.

Before you choose a loan term, assess your current financial situation and your projected future income. Your comfort with the size of the monthly payment, your financial goals, and your age at the end of the term are all factors that should inform your decision.

By understanding these elements, you can select a loan term that best aligns with your financial plans, payment capability, and homeownership goals.

Step 5: Assess Market Conditions

Assessing market conditions can help you secure a favorable mortgage rate. The U.S. Federal Reserve sets the federal funds rate, which is the rate at which the central bank lends money. The funds rate determines the interest rate for credit cards, loans, and mortgages.

A flourishing economy often triggers an increase in mortgage interest rates. The U.S. Federal Reserve has raised rates recently to try to stem inflation. However, an economic downturn could cause the Fed to keep rates steady or even reduce rates to stimulate borrowing and spending.

Understanding these principles can offer insight into potential rate fluctuations as you decide whether you want to buy now or wait for rates to drop.

It’s important to research these factors to have an understanding of the market. But you can also seek the guidance of a financial advisor or a mortgage broker. They have expertise in market trends and can provide advice tailored to your circumstances.

Step 6: Leverage First-Time Homebuyer Programs

If you’re buying a home for the first time, there are a plethora of programs tailored to assist you in securing a favorable interest rate. These programs, often government-supported or backed by financial institutions, are designed to make homeownership more accessible. They offer a variety of incentives such as competitive mortgage rates, lower down payment requirements, or even assistance with down payments.

To qualify, you usually need to meet certain criteria, including income limits, purchasing in a designated area, or completing a homebuyer education course. It’s crucial to investigate these opportunities, as eligibility can vary widely between programs and regions.

Tapping into these programs can significantly alleviate the financial strain of homeownership, reducing your mortgage rate, and making the dream of owning a home more achievable and affordable. Research and due diligence are key in identifying and securing these benefits.

Step 7: Compare Multiple Lenders

Actively seeking and comparing options from several lenders can help you secure the most favorable interest rate. Here are three steps to take in your search for the best mortgage rate.

  • Know what to compare: Each lender may have unique offerings in terms of mortgage loan options, closing costs, and interest rates. By getting quotes from a minimum of three lenders, you ensure that you have a broad spectrum for comparison, helping you make an informed decision.
  • Utilize financial tools: A mortgage calculator is an excellent tool for to evaluate lenders. By inputting the variables of different interest rates, loan terms, and down payment amounts, you can get a clearer understanding of the monthly payment and total cost associated with each loan option.
  • Take your time: Don’t rush this step. It’s important to thoroughly review and understand each offer. Remember, a mortgage is a long-term commitment, and the details matter. Choosing the right lender can save you thousands of dollars over the life of your loan.

Step 8: Negotiate Your Mortgage Rate

Negotiating your mortgage rate can lead to significant savings. Lenders and mortgage brokers often have some flexibility in the rates and fees they can offer. This is where thorough research and understanding of your own financial health, including your credit scores, debt-to-income ratio, and loan options, can be advantageous.

The more you understand these factors, the more leverage you have during negotiations. A well-prepared negotiation strategy can give you a significant advantage in securing a mortgage rate that suits your financial situation best.

Remember, even a slight decrease in your mortgage rate can result in significant savings over the life of your loan. It’s worth the effort to negotiate terms; it could save you a considerable amount of money in the long run.

Rate Lock and When to Lock In Your Rate

A rate lock guarantees your interest rate for a specified period, protecting you from market fluctuations during the mortgage process. Rate locks can vary from 30 to 60 days or more, so it’s important to ensure the lock period covers your expected closing date. It’s wise to lock your rate when you believe rates may rise before closing. Ask your lender for advice on the best timing can help you make an informed decision.


Securing the best mortgage interest rate can make your dream home more affordable and save you thousands over the life of the loan. By understanding how different factors like your credit scores, down payment, and loan term affect your rate, you can take steps to secure the best mortgage deal. Remember, a home loan is likely to be one of the biggest financial commitments you’ll ever make, so take the time to get it right.

Frequently Asked Questions

What is the ideal credit score for getting the best mortgage rate?

A credit score of 740 or higher generally qualifies borrowers for the best mortgage rates, though requirements can vary by lender. However, it’s still possible to secure a mortgage with a lower credit score, but the rates might be higher.

What’s the difference between a fixed-rate and an adjustable rate mortgage (ARM)?

A fixed-rate mortgage has a constant interest rate and monthly payments that never change. This offers stability and predictability over the life of the loan.

Adjustable rate mortgages have an interest rate that may change periodically, affecting your monthly payments. The rate adjustments are tied to market conditions and specified in the mortgage agreement.

The main difference is that a fixed-rate mortgage offers long-term stability in payments, while an ARM carries the risk of the payments increasing or decreasing over time.

How much can I save by improving my credit score?

The difference in mortgage rates between different credit score ranges can be substantial. For instance, improving your credit score from ‘fair’ (580-669) to ‘very good’ (740-799) could potentially lower your interest rate by a full percentage point or more. Over the life of a 30-year mortgage, this could translate to tens of thousands of dollars in savings.

How much should I save for a down payment?

The amount you should save for a down payment can depend on the type of loan you’re getting and your financial situation. Traditionally, a 20% down payment is recommended for conventional loans, as this allows you to avoid paying for private mortgage insurance (PMI). However, some loan types, such as Federal Housing Administration (FHA) loans, allow for lower down payments.

How do I choose between a 15-year and a 30-year loan term?

The choice between a 15-year and a 30-year loan term depends on your financial circumstances and goals. A 15-year loan typically has a lower interest rate but a higher monthly payment, making it a good choice if you can comfortably afford the payments and want to pay off your mortgage faster. On the other hand, a 30-year loan has a lower monthly payment but a higher interest rate, making it a more affordable option for many buyers.

Is it worth buying discount points to lower my interest rate?

Whether it’s worth buying discount points depends on your particular situation. If you have the cash and plan to stay in your home a long time, buying points can be beneficial. The savings over time from a lower rate can exceed the points’ upfront cost.

What are some examples of first-time homebuyer programs?

First-time homebuyer programs can vary by state and by lender, but some examples include FHA loans, USDA loans, and VA loans, as well as specific state-sponsored programs that offer down payment assistance or tax credits. It’s worth checking with your local government and potential lenders to see what programs might be available to you.

How do market conditions impact mortgage rates?

Mortgage rates are influenced by several market conditions, including inflation rates, economic growth indicators, and monetary policy decisions by central banks. Generally, when the economy is strong, mortgage rates tend to rise to keep inflation in check. Conversely, during economic downturns, rates often fall to stimulate borrowing and investment.

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.