Mortgage rates are the interest you pay on the remaining balance of a mortgage loan. When you borrow the money, you promise to repay the loan at an agreed-upon interest rate. That’s the all-important mortgage rate borrowers are so interested in.
It’s just one factor, and no doubt the most important to consider when you are trying to determine how much a loan will cost you. To borrow the money, the lender will charge you a fee, expressed as an interest rate assessed for the life of the loan.
This article will expose you to everything you should know about how to get a mortgage, picking a perfect mortgage rate, and the current rate trends.
A mortgage is a type of loan designed for buying a home. Mortgage loans allow buyers to break up their payments over a set number of years, paying an agreed amount of interest.
Mortgages are also legal documents that allow the mortgage holder to (re)claim the property if the buyer doesn’t make their payments.
It also protects the buyer by forbidding the mortgage holder from taking the property while regular payments are being made. In this way, mortgages protect both the mortgage holder and the buyer.
How to Get a Mortgage
Because a home is usually the biggest purchase a person makes, a mortgage is usually a household’s largest chunk of debt.
Getting the best possible terms on your loan can mean a difference of hundreds of extra dollars in or out of your budget each month, and tens of thousands of dollars in or out of your pocket over the life of the loan.
It is important to prepare for the mortgage application process to ensure you get the best rate and monthly payments within your budget.
Here are quick steps to prepare for a mortgage:
Build your credit
Make a budget
Set savings aside for both down payment and expected monthly payments
Research the best type of mortgage for you
See multiple houses within your budget
Apply for a mortgage loan
Close on your new house
Types of Mortgages
There are many different types of mortgages and it’s important to understand your options so you can select the loan that’s best for you: conventional, government-insured, and jumbo loans, also known as non-conforming mortgages.
1. Conventional Mortgages
These are loans that Fannie Mae or Freddie Mac, ultimately buys the big government-sponsored enterprises that play an important role in the lending market.
Fixed-rate Mortgages: A fixed-rate mortgage has an interest rate that doesn’t change throughout the life of the loan. In that way, borrowers are not exposed to rate fluctuations.
For example, if you have a fixed-rate mortgage with a 3.5 percent interest rate and prevailing rates shoot up to 5 percent the next week, year or decade, your interest rate is locked in, so you don’t ever have to worry about paying more.
Adjustable-rate Mortgages: Adjustable-rate mortgages, or ARMs, have an initial fixed-rate period during which the interest rate doesn’t change, followed by a longer period during which the rate may change at preset intervals.
Unlike a fixed-rate mortgage, ARMs are affected by market fluctuations. So if rates drop, your mortgage payments will drop. However, the reverse is also true — when rates rise, your monthly payments will also rise.
Generally, interest rates are lower to start than with fixed-rate mortgages, but since they’re not locked into a set rate, you won’t be able to predict future monthly payments.
ARMs come with an interest rate cap above which your loan cannot rise.
2. Government-insured Mortgages
Three agencies: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) back FHA Loans, VA Loans, USDA Loans: Government-insured or government-backed loans.
The U.S. government isn’t a mortgage lender, but it sets the basic guidelines for each loan type offered through private lenders.
Government-backed loans can be good options for first-time homebuyers as well as folks who have a lower down payment or smaller budget.
The requirements are usually looser than those for mortgages not secured by the government. These are known as conventional mortgages.
The interest rates on FHA, VA, and USDA loans are similar to conventional mortgages, but fees and other costs are higher.
3. Non-conforming Mortgages
Jumbo Mortgages: Jumbo mortgages are loans that exceed federal loan limits for conforming loan values.
For 2022, the maximum conforming loan limit for single-family homes in most of the U.S. is $647,200, and $970,800 in more expensive locales, according to the Federal Housing Finance Agency.
Jumbo loans are more common in high-cost areas and generally require more in-depth documentation to qualify. Jumbo loans are also a bit more expensive than conforming loans.
Pros and Cons of Getting a Mortgage vs. Renting
Homeownership is synonymous with the American Dream, but the housing boom has pushed this goal out of reach of many. Some of the advantages and disadvantages of homeownership:
A home is a powerful way to build wealth over time.
Homeownership provides the certainty of knowing where you’ll live from one year to the next.
With a fixed-rate mortgage, you know your principal and interest costs won’t change. A landlord can boost your rent when your lease is up.
Homeownership is expensive, prohibitively so in some markets.
Maintenance and repairs are a constant — and costly — a reality for homeowners.
As home values rise, so do insurance premiums and property taxes.
Current Mortgage and Refinance Rates
30-Year Fixed Rate
30-Year FHA Rate
30-Year VA Rate
30-Year Fixed Jumbo Rate
20-Year Fixed Rate
15-Year Fixed Rate
15-Year Fixed Jumbo Rate
5/1 ARM Rate
5/1 ARM Jumbo Rate
7/1 ARM Rate
7/1 ARM Jumbo Rate
10/1 ARM Rate
Current Weekly Mortgage Interest Rate Trends
30-Year Fixed Rates
15-Year Fixed Rates
10-Year Fixed Rates
5/1 ARM Rates
How does the Federal Reserve Affect Mortgage Rates?
The Federal Reserve does not set mortgage rates, and the central bank’s decisions don’t drive mortgage rates as directly as they do other products, like savings accounts and CD rates.
However, the Fed does set borrowing costs for shorter-term loans in the U.S. by moving its federal funds’ rate. The federal funds rate can have a knock-on effect on 10-year Treasury bond yields, which is what most mortgage rates are tied to.
Basically, the Fed does not directly set mortgage rates, but its policies can influence the financial markets and movers that do.
When finding current mortgage rates, the first step is to decide what type of mortgage best suits your goals and budget. Most borrowers opt for 30-year mortgages, but that’s not the only choice.
Typically, 15-year mortgages have lower rates but larger monthly payments than the more popular 30-year mortgage.
Adjustable-rate mortgages usually have lower rates, to begin with, but the downside is that you’re not locked into that rate, so it can change over the life of your loan.
Step 2: Compare mortgage rates
Once you decide which mortgage type fits your needs, you can begin comparing current mortgage options. There’s only one way to be sure you are getting the best available rate, and that’s shopping as many lenders as possible.
Aim for a minimum of three lenders and consider working with a mortgage broker. Check for APR, interest rates, APRs, upfront fees, and monthly payments for the amount you choose.
What Factors Determine my Mortgage Rate?
Lenders consider these factors when pricing your interest rate:
The higher your score, the less risk you pose in the lender’s view — and the lower rate you’ll pay.
Lenders also consider how much you’re putting down. The greater share of the home’s total value you pay upfront, the more favorably they view your application.
The kind of mortgage you choose can affect your rate, too, with shorter-term loans like 15-year mortgages typically having lower rates compared to 30-year ones.
How do I Get the Best Mortgage Rate?
Shopping around is the key to landing the best mortgage rate. Look for a rate that’s equal to or below the average rate for your loan term and product. Compare rates from at least three, and ideally four or more, lenders.
This lets you make certain you’re getting competitive offers.
Check with a variety of types of lenders — large banks, credit unions, online lenders, regional banks, direct lenders, and mortgage brokers.
Interest rates and terms can vary significantly among lenders depending on how much they want your business and how busy they are processing loans.
As online and non-bank lenders take an ever-greater share of the mortgage market, expect to see the deals get even better no matter where interest rates go.
Keep in mind that mortgage rates change daily, even hourly. Rates move with market conditions and can vary by loan type and term.
To ensure you’re getting accurate rate quotes, be sure to compare similar loan estimates based on the same term and product.
Mortgage Industry Rate Insights
Most experts expected mortgage rates to rise this year, but it happened faster than many predicted, averaging more than 4.5 percent for 30-year fixed loans in late March.
Although today’s rates aren’t crazy by historical standards, they are higher than they have been in three years, and that’s likely to have a few knock-on effects on the housing market. Though it probably won’t cause housing prices to decline significantly.
What is the Minimum Credit Score to get a Mortgage?
Lenders reserve their most competitive rates to borrowers with excellent credit scores — usually 740 or higher. However, you don’t need spotless credit to qualify for a mortgage.
Loans insured by the Federal Housing Administration, or FHA, have a minimum credit score requirement of 580, although you’ll probably need a score of 620 or higher to qualify with most lenders.
(While FHA loans offer competitive rates, the fees are steep.)
Mortgage lenders come in all shapes and sizes, from online companies to brick-and-mortar banks — and some are a mix of both. Decide what type of service and access you want from a lender and balance that with how competitive their rates are.
You might decide that getting the lowest rate is the most important factor for you, while others might go with a slightly higher rate because they can apply in person, for example.
Some banks offer discounts to existing customers, so you might be able to save money by getting a loan where your savings account or checking account is.
And if your credit is a bit tarnished, many lenders offer loans with lower down payments and credit requirements through the FHA. Veterans will find VA mortgages especially attractive.
Top Mortgage Lenders
Better.com (Better Mortgage) is an online mortgage lender offering a range of loan products in the majority of states in the U.S.
Strengths: Better.com can save you time and money with three-minute preapprovals and 21-day closings, on average, and no lender fees.
If you get more competitive mortgage rates from another lender, you can also take advantage of the Better Price Guarantee, in which Better.com either matches that rate or gives you $100. The lender offers seven-days-a-week support by phone, as well, if you need it.
Weaknesses: If you’re looking for a VA loan or USDA loan, you’ll have to search elsewhere; Better.com currently doesn’t offer these loan types.
Although the Better Price Guarantee can help you get a lower rate, it’s only available if you apply online directly through the lender.
2. Interfirst Mortgage Company
Interfirst Mortgage Company (Chicago Mortgage Solutions LLC) is a combo-direct mortgage lender, wholesale lender (meaning it works with mortgage brokers), and correspondent lender.
Strengths: Interfirst has a good rating from the Better Business Bureau and high marks from borrowers on Bankrate and elsewhere.
Plus, with its multiple business channels, the lender can offer several loan options for many types of borrowers.
Weaknesses: Interfirst isn’t licensed in every state, and if you’re trying to compare mortgage rates, you might have a harder time, since this lender doesn’t showcase rates publicly on its website.
3. AmeriSave Mortgage Corporation
AmeriSave Mortgage Corporation is an online mortgage lender, available in every state except New York, offering an array of loan products. Along with conventional loans and refinancing, the lender also offers government loans.
Strengths: Like other online mortgage lenders, AmeriSave Mortgage Corporation has some of the most competitive rates out there. The lender also doesn’t charge a separate origination fee.
Weaknesses: You’ll still need to pay a flat $500 fee.
4. Cardinal Financial
Cardinal Financial, which also does business as Sebonic Financial, is a national mortgage lender that offers both an in-person and online experience and a wide variety of loan products.
Strengths: Borrowers have a range of options with Cardinal Financial, with the lender able to accept credit scores as low as 620 for a conventional loan, 660 for a jumbo loan, 580 for an FHA or USDA loan and 550 for a VA loan.
The lender also offers speedy preapprovals, and some borrowers have been able to close in as little as seven days.
Weaknesses: Cardinal Financial’s current mortgage rates and fees aren’t listed publicly on its website, so you’ll need to consult with a loan officer for specifics pertaining to your situation.
5. Fairway Independent Mortgage Corporation
With hundreds of branches, Fairway Independent Mortgage Corporation can offer an in-person experience to both first-time and repeat homebuyers across the U.S.
Strengths: If you’ve never taken out a mortgage before, Fairway has an extensive glossary of mortgage terms you can read up on, several mortgage calculators, and a homebuyer guide with a checklist, dos and don’ts, and more.
The lender also offers first-time homebuyer-friendly loans, including FHA loans, and a mobile app, FairwayNow, where you can send direct messages and track your loan status.
Weaknesses: You’ll have to talk to a loan officer to find out rates and fees; these aren’t available readily on Fairway’s website.
What is the Difference Between APR and Interest Rate?
The difference between APR and interest rate is that the APR (annual percentage rate) is the total cost of the loan including the interest rate and all fees.
The interest rate is just the amount of interest the lender will charge you for the loan, not including any of the administrative costs.
By capturing points and fees, the APR is a more accurate picture of how much the loan will cost you and allows you to compare loan offers with differing interest rates and fees.
Here’s what may be included in the APR:
Interest rate. That’s pretty straightforward and is simply the percentage rate paid over the life of the loan.
Points. This is an upfront fee the borrower can opt to pay to lower the interest rate of the loan. Each point, which is also known as a discount point, costs 1 percent of the mortgage amount. So, one point on a $300,000 mortgage would cost $3,000 upfront.
Mortgage broker fees. Brokers can help borrowers find a better rate and terms, but they must pay their services for when the loan closes. This cost is shown in the APR and can vary. The broker’s commission typically ranges from 0.50 percent to 2.75 percent of the loan principal.
Some closing costs, including loan origination fees. But title insurance and prepaid items are not and these costs are considerable. Closing costs typically range from about 2 to 5 percent of the loan amount.
What are Mortgage Points?
Mortgage points, also referred to as discount points, help homebuyers reduce their monthly mortgage payments and interest rates. A mortgage point is most often paid before the start of the loan period, usually during the closing process.
It’s a type of prepaid interest made on the loan. Each mortgage point typically lowers an interest rate by 0.25 percentage points. For example, one point would lower mortgage rates from 3 percent to 2.75 percent.
The cost of a point depends on the value of the borrowed money, but it’s generally 1 percent of the total amount borrowed to buy the home.
Buying points upfront can help you save money in interest over the life of your loan, but doing so also raises your closing costs.
It can make sense for buyers with more disposable cash, but if high closing costs will prevent you from securing your loan, buying points might not be the right move.
For today, March 29th, 2022, the current average mortgage rate on the 30-year fixed-rate mortgage is 4.821%, the average rate for the 15-year fixed-rate mortgage is 3.951%, and the average rate on the 5/1 adjustable-rate mortgage (ARM) is 3.499%.
Rates are quoted as annual percentage rate (APR).
2. What is a Good Mortgage Interest Rate?
Mortgage rates published on lender websites and advertised online can set unrealistic expectations for the interest rate you’ll really earn. How do you know you have a good mortgage rate?
Once you know what kind of home loan will work best for you, it will be time to compare three or more lenders to determine the right mortgage rate offer for you.
With a Loan Estimate from each lender compared side-by-side, you’ll be able to see which lender is giving you a good mortgage rate combined with the lowest origination fees.
3. What are Mortgage Rates Lock?
Mortgage rates lock freezes the interest rate. The lender guarantees (with a few exceptions) that the mortgage rates offered to a borrower will remain available to that borrower for a stated period of time.
With a lock, the borrower doesn’t have to worry if rates go up between the time they submit an offer and when they close on the home.
4. When Should I Lock My Mortgage Rate?
Most lenders offer a 30- to 45-day rate lock free of charge. This means if the interest rate increases before your loan closes, you get the stated rate.
However, if rates fall, you won’t benefit unless you restart the loan process, a costly and time-consuming endeavor.
Although some lenders offer a free rate lock for a specified period, after that period they may charge fees for extending the lock.
Mortgage rates are an important factor when considering which mortgage loan to take. This article has been able to state factors that will help you find the right rates for your mortgage loans and we hope it helped.
If this article was helpful to you, do well to share it with others, as this might be helpful to them as well.