How to Get a Low Interest Rate on a Mortgage

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• Your mortgage interest rate is based in part on how risky lenders consider you to be as a borrower.
• Your credit score and credit report are vital for mortgage approval.
• Your income compared to your debt obligations is another important part of getting a mortgage.

For most Americans, buying a home means taking on a mortgage payment. And while the price of your house will play a big role in the size of that payment, your interest rate will, too.

Mortgage interest rates are influenced by a wide range of factors. Some are external, including the economy, Federal Reserve actions, and investment activity, and others are based on you, the borrower — things like your credit score and debts. 

Want to get the best mortgage rate possible? Use these strategies for lowering mortgage interest rates.

Improving your credit score

Raising your credit score is one way to get a lower interest rate on your mortgage.

The role of credit in mortgage rates

The impact of credit scores on mortgage rates is significant. Lenders use your credit to gauge how well you manage your money — and how likely you are to make your mortgage payments on time.

A high credit score and a history of on-time bill payments tell the lender you’re financially responsible, and it will typically get you a lower interest rate. A lower score and lots of late payments will mean the opposite. According to ICE Mortgage Technology, the average conventional loan borrower with an 800-plus credit score received a 6.85% interest rate in mid-March. For borrowers with scores between 660 and 679, the average rate jumped to 7.43%.

Tips for boosting your credit score

If your credit’s not the best, work on paying your bills on time or set them on autopay. Payment history is the biggest factor in your credit score, so late payments can hurt your score considerably. You should also work to pay down any credit card and line-of-credit balances, as your total debts make up 30% of your score. Credit inquiries — which occur when you open new accounts — play a role, too, so take at least a six-month moratorium from applying for new accounts.

In addition to qualifying for the best rate on your own, you should pick a lender with the lowest interest rates. 

Comparing rates from different lenders

Just because you have your checking account at a bank down the road doesn’t mean they offer the best mortgage rates. The internet makes it easy to quickly compare the best rates.

When I bought my home in Portland, Oregon, I talked to two local lenders and one nationwide credit union. I found the best rate given my income and credit came from PenFed Credit Union, so that’s where I got my mortgage. 

For my current home, I shopped around again and found that a California-based lender, New American Funding, had the lowest rate for my finances. 

The importance of preapproval

To find out what lender is best for your situation, apply for mortgage preapproval with a few different banks and companies. They’ll then give you a loan estimate, which will break down their rates and fees. You can use this to find the lowest-cost loan.

Understanding the types of mortgages

When it comes to interest rates, not all mortgages are created equal. Loans with longer terms typically have higher rates, while shorter-term loans — think 15-year loans, for example — have lower ones.

Fixed-rate vs. adjustable-rate mortgages

The type of rate you choose matters, too. Adjustable-rate mortgages — which have rates that can move upward or downward over time — often have lower rates than fixed-rate loans, at least at the start. 

You sacrifice stability when you go with adjustable loans, though. Since your rate and payment can change later, you’ll need to be sure your budget can accommodate a higher payment later on.

Choosing the right mortgage for a low interest rate

The loan program you choose factors in as well.

VA loans, which are available only to veterans, military members, and their spouses, tend to have the lowest interest rates among all loan types.

FHA loans tend to have low rates, too. The average rate on VA loans was 6.41% as of March 15, according to ICE Mortgage Technology, while FHA loans sat at 6.50%. Conventional loans had an average rate of 7%.

Making a larger down payment

Another strategy is to make a larger down payment. Saving up for a down payment can take a long time, but you don’t necessarily need to have a full 20% down to reap the benefits of a larger down payment. Typically, borrowers need to put at least 3% down on a conventional loan. If you can bring more than that to the table, you may be rewarded with a slightly better rate. 

How down payments affect interest rates

The larger your down payment, the more skin you have in the game — and the less money your lender has on the line if you fail to make your payments. 

This makes you less of a risk in the eyes of the lender, and you’ll likely be able to get a lower rate as a result.

Negotiating with lenders

In addition to comparing the rates lenders offer you, you can also negotiate with them. 

Techniques for negotiating lower rates

There are several strategies for negotiating mortgage rates with lenders. 

For instance, if one lender offers a lower rate or fewer fees than the others, use their loan estimate to negotiate. Ask lenders if they’d be able to match or even beat what the lowest-cost company is offering.

You can also ask lenders if they have any promotions you can take advantage of or if they’ll buy down your rate. Some lenders offer this in competitive markets and will pay to reduce your interest rate for the first few years of the loan.

The role of mortgage points in reducing rates

If lenders won’t budge, you can ask about buying points. These allow you to lower your interest rate by making a cash payment upfront. Points can save you money in some cases, but the math doesn’t always add up. Try out a mortgage calculator that supports points to decide if it’s a good deal for you.

Locking in your rate

A rate lock lets you cement your interest rate while you finalize your home purchase. It can protect you from potential rate increases in the weeks leading up to closing, but it can also keep you from taking advantage of lower rates, too.

Timing your rate lock

It’s important to time your rate lock properly — especially if you’re in a falling-rate environment. If rates are rising week to week, locking sooner may help keep you from paying more on your loan. But if rates are dropping, you may want to hold out longer to snag a lower rate.

You can also ask your lender if they offer any float-down options. These let you pay a fee and reduce your rate, should market rates fall. 

Monitoring market rates

You can work with your loan officer to monitor market rates and ensure you’re timing your rate lock properly. Freddie Mac also publishes average mortgage rates weekly, so check its Primary Mortgage Market Survey every Thursday to ensure you’re up to date on the latest rates.

Small savings on a big loan add up fast

The benefits of shopping around for mortgage rates are notable. For a savings account with a $1,000 balance, the difference of a 0.25% interest rate isn’t that big of a deal. But for a mortgage with a six-figure balance and 30-year payback period, a quarter of a percent can mean thousands — maybe tens of thousands — saved. 

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