The average interest rate for a 30-year, fixed-rate mortgage is now above 7 percent. If you’re planning on buying a home and looking for a loan, that’s a tough pill to swallow, given that the average rate was less than 3 percent just a few years ago.
Mortgage rates are influenced by several factors, including inflation and, to some extent, short-term interest rates set by the Federal Reserve, which were recently increased to a 22-year high. Although you can’t control what’s happening in the economy, you have ways to lower your costs.
Check advertised rates from a variety of lenders, keeping in mind that the rates can change as often as daily. Explore all of your options, including local banks and credit unions as well as online banks, says Jill Gonzalez, an analyst for the personal finance website WalletHub. If you qualify as a veteran, be sure to consider a VA loan.
Although monthly payments will be higher, a 15-year mortgage will have a lower interest rate than a 30-year mortgage, so you’ll pay less in interest overall. In early October, the average rate on a 15-year mortgage was 6.78 percent, compared with 7.49 percent for a 30-year, fixed-rate loan, according to Freddie Mac.
You may also be able to lower costs by buying mortgage points—basically, a fee you pay to lower the interest on your mortgage, says Eileen Tu, vice president of product development for Rocket Mortgage.
A mortgage point represents 1 percent of the mortgage loan and is added to the total amount you are borrowing. Each point you agree to pay can lower your overall interest by approximately 0.25 percentage point.
Your credit score, which is based on information from your credit reports, will affect whether you qualify for a loan and the rates you are offered. “The higher your credit score, the easier it’ll be to negotiate loan terms or a lower interest rate,” Gonzalez says.
Your credit score can be improved in as little as 30 days by paying down credit card balances to no more than 30 percent of your available credit. Requesting an increase of the credit limit on existing cards and paying off your credit card balances on or before the due date could also boost your score.
Once you settle on a lending institution and a mortgage rate, ask to lock it in for a specified period. Lenders typically allow you to lock in a rate from 30–60 days. That should provide you with peace of mind while you’re finalizing your purchase.
