Complete understanding of mortgage rates.
Obtaining a mortgage can be intimidating for first-time homebuyers. Mortgage rate fluctuations on a daily basis can make anyone’s head spin.
This was especially true during the COVID-19 pandemic, when interest rates appeared to hit weekly lows. The rush to take advantage of low interest rates added stress to an already stressful situation. With interest rates rising, the pressure is back on to find a mortgage before rates rise even further.
The good news is that homebuyers can still lock in competitive interest rates with patience and knowledge. For the most recent mortgage rates, scroll down.
How Mortgage Interest Rates Work
While many factors influencing mortgage rate trends are beyond your control, such as the state of the economy, there are steps you can take to ensure you are getting the best rate possible. These considerations include your credit score and down payment amount, as well as the type of home loan, lender, and house you select.
Credit ratings
Your credit score is an important factor in determining your mortgage rate. People with credit scores above 740, on average, qualify for the best mortgage rates.
According to Experian, borrowers with fair credit scores — 580 to 669 — are more likely to pay a higher interest rate than those with excellent credit scores of 740 or higher. Of course, the interest rate you pay will be determined by the type of loan and lender you select. In general, the lower your credit score, the higher your interest rate, so it’s worthwhile to work on improving your credit score.
Your bank, credit union, or credit card provider may be able to provide you with your score. Apps are also available.
Experts also advise checking your credit reports at least once a year. Annualcreditreport.com provides this service for free. While your credit reports will not include your credit score, reviewing them can help you identify areas for improvement or errors that may be affecting your score. If any credit items on your report are incorrect, you can dispute them directly with the credit bureaus or the companies that reported the information.
Mortgages with fixed rates vs. mortgages with adjustable rates
When looking for a mortgage, one of the decisions you’ll have to make is whether you want a fixed-rate loan or an adjustable-rate loan.
A fixed-rate mortgage, such as a 30-year fixed, has the same interest rate for the duration of the loan. An adjustable-rate mortgage (ARM) has a variable interest rate. These loans begin with a fixed rate period, but the rate will then adjust on a regular basis based on market conditions.
A 5/1 ARM, for example, has a fixed rate for the first five years of the loan. After that, the interest rate on your mortgage can change every year for the remainder of its term (typically 30-years total). Fixed-rate loans are more popular, but some borrowers prefer variable-rate loans.
Conventional vs. government-insured mortgages
Conventional financing
Another critical decision will be the type of mortgage you take out. The majority of people obtain conventional loans from private lenders such as banks, credit unions, and, increasingly, non-bank online lenders. A credit score of at least 620 and a larger down payment are usually required to qualify for a conventional loan, as opposed to most government loans.
Conventional loans are classified into two types: conforming and non-conforming.
Conforming loans are those that meet the purchase criteria established by Freddie Mac and Fannie Mae, the two largest government-sponsored enterprises. In most of the country, the conforming loan limit for 2022 is $647,200, but it rises to $970,800 in expensive housing markets. Loans that do not conform
