10 Ways to Get A Lower Mortgage Rate

Today’s mortgage rate for a conventional 30-year fixed-rate mortgage is 6.375%. But let’s say you want a lower mortgage rate than even that.

There are many reasons to want a lower mortgage rate:

• Your monthly PITI drops, which makes your budget works better
• Your debt-to-income ratio reduces, which makes it easier to get approved
• Your purchasing power increases by 11% with every 100 basis point drop in rates

When you want a low mortgage rate, for obvious reasons, start with mortgage companies proud enough to publish their current mortgage rates online. Then, apply these ten principles to squeeze out more.

Here are 10 proven ways to get a lower mortgage rate.

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10 Expert Tips: Getting Your Lowest Mortgage Rate

1. Use a First-Time Home Buyer Mortgage Program

There are more than 3,000 public and private first-time home buyer program available to buyers today. Program benefits may include interest rate discounts, cash grants for closing costs, tax credits, and forgivable loans for making a down payment.

Congress is also discussing first-time home buyer programs that buyers can use to get a lower mortgage rate, including the $25,000 Downpayment Toward Equity Act and the LIFT Act.

2. Shorten Your Closing Date Into 15-Day Increments

A mortgage rate lock is a lender’s commitment to honor a specific mortgage rate, at a guaranteed cost, for a specified number of days. 

In general, mortgage lenders raise interest rates by 0.125 percentage points for every additional 15 days added to a rate lock.

At current mortgage rates, the difference between a 30-day rate lock and a 45-day rate lock is $8 per month per $100,000 borrowed.

When you write your purchase offer, choose a closing date based on 15-day windows. Close in 30 days instead of thirty-one days. Close in 45 days instead of forty-six.

3. Pay for Mortgage Discount Points

Discount points are upfront, one-time fees paid at closing that reduce a home buyer’s mortgage rate permanently. Each discount point costs 1 percent of your loan size and will typically lower your mortgage rate by 0.25 percentage points.

At today’s mortgage rates, one discount point on a $200,000 mortgage adds $2,000 to your closing costs and saves approximately $11,707 over the life of a 30-year mortgage.

4. Fix Your Credit Score by 20 Points

When you’re buying a home and don’t require immediate mortgage approval, improve your credit score to help get lower rates. Even a 20-point credit score change can make a meaningful difference.

The earlier you learn to fix your credit score, the more improvements you can make.

Fixing your credit is about more than just reducing balances and correcting credit bureau mistakes, and when you want an extra boost to your FICO, look to subscription services like StellarFi, which do rapid credit-building and can show results in 30 days.

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As Your Credit Score Goes Up, Your Mortgage Rate Comes Down

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5. Increase Your Down Payment To the Next 5 Percent

For home buyers using a conventional mortgage to finance their home, boosting your down payment size to its next five-percent increment can result in lower mortgage rates.

For buyers with excellent credit scores, moving from five to 10 percent down lowers a conventional mortgage rate by 0.125 percentage points which, at today’s mortgage rates on a $200,000 mortgage, reduces a mortgage payment by $16 per month.

Raising your down payment amount is less effective an interest-rate lowering technique with FHA mortgages, VA mortgages, and USDA mortgages which use a different pricing model from standard conventional loans..

6. Get Seller Concessions To Buy Discount Points

Seller concessions are a form of down payment assistance through which a home seller gives their home buyer cash to pay some or all of the buyer’s transactional closing costs.

Seller concessions are negotiated by the buyer’s and seller’s real estate agent as part of the purchase contract agreement. In For Sale By Owner transactions, the buyer and seller negotiate for seller concessions directly.

Seller concessions may range up to 9 percent of the purchase, depending on the mortgage type and loan-to-value. Seller concessions cannot be used for down payment, commissions, or other non-closing fees.

7. Do a Temporary Mortgage Rate Buydown

Temporary mortgage rate buydowns are a home affordability option that reduce a home buyer’s mortgage rate for 1 to 3 years only. They function like non-permanent discount points.

Buydowns are named for their length. With a 3-2-1 buydown, the mortgage interest rate reduces by three percentage points in the first year, two percentage points in the second year, and one percentage point in the third year. 

In the fourth year, the original rate returns and remains for the loan’s remaining life. 

Temporary mortgage rate buydowns aren’t often cost-effective. A 2-1 buydown may generate $8,000 in mortgage interest savings, but the cost of a 2-1 buydown is also around $8,000.

8. Use an Adjustable-Rate Mortgage

Adjustable-rate mortgages (ARMs) are mortgages where the interest rate remains fixed for the first several years of the loan, after which the rate adjusts annually. Mortgage rates for ARMs are generally lower than fixed-rate mortgages because ARMs can reduce a bank’s interest rate risk.

An example adjustable-rate mortgages work like this:

• The initial, lower interest rate lasts for 5 years
• After five years, the ARM interest rate changes to match the market
• Each subsequent year, the interest rate changes again

Today’s adjustable-rate mortgages are safer for buyers than during 2005-2007. Today’s ARMs limit how much an interest rate can change each year and do not allow features such as negative amortization that can increase the principal balance of the mortgage.

9. Use HomeReady or Home Possible Loans

Home buyers in low- and moderate-income neighborhoods can get a lower mortgage rate by choosing mortgage programs such as HomeReady and Home Possible.

HomeReady and Home Possible are part of the federal government’s affordable housing mandate. Eligible buyers get mortgage rates at a half-percentage point or more below standard conventional 30-year fixed-rate mortgage rates, plus access to reduced mortgage insurance rates and closing costs.

At current mortgage rates, for every $100,000 borrowed, a home buyer can expect to save at least $388 annually with a HomeReady or Home Possible mortgage.

Ask your mortgage lender for a HomeReady or Home Possible mortgage by name.

10. Get Multiple Mortgage Rate Quotes

Comparison shopping is a proven way to reduce your mortgage interest rate.

According to a Freddie Mac study, home buyers who get at least two mortgage rate quotes save $1,500 over the life of their loan through a combination of closing costs, interest rate savings, or both. The same study shows home buyers who get four quotes save $5,000, on average.

Getting a Lower Mortgage Rate: A Real World Example

First-Time Home Buyer Stories: Homeowners Association

Imagine a first-time home buyer writing an offer to buy their first home.

Their financing is pre-approved by a mortgage company, but the buyer is nervous for payment shock. They have already worked to improve their credit score and earned a 60-point increase, giving them access to lower mortgage rates.

To lower their rate further, they ask their buyer’s agent to add seller concessions to the offer for buying discount points, and request for a closing within 30 days.

With a lower mortgage rate, the buyer can get the lowest mortgage payment possible, opening up space in the budget and reducing monthly costs.

Common Questions About Getting A Lower Mortgage Rate

Should I float my mortgage rate to get a lower rate?

Floating your mortgage rate is the opposite of requesting a mortgage rate lock. When you float your mortgage rate, you are not guaranteed that interest rates will come down, and your lender is not obligated to give you a low rate, either. When you float your mortgage rate, you’re making a mortgage rate prediction that interest rates will be lower prior to your closing. 

Should I switch to a shorter loan term for a lower rate?

Shortening your loan term from 30 to 15 years lowers your mortgage interest rate. Generally, shorter loan terms result in higher monthly payments. If you can stomach a high payment, choose the shorter loan term. Otherwise, stick with the 30-year loan term.

Do certain mortgage programs give lower mortgage rate to home buyers?

First-time buyers can get a mortgage rate discount through the FHFA First-Time Home Buyer Mortgage Rate Discount program. Discounts are automatic.

Who has lower mortgage rates: a mortgage broker or a bank?

Mortgage brokers and mortgage banks can both have low mortgage rates; there is no simple rule for which one is lower. Usually, the mortgage company with the lowest mortgage rates is the one with the lowest overhead and cost structure.

How do I negotiate with my lender for lower mortgage rates?

Generally, mortgage rates can’t be negotiated because if a lender offered different mortgage rates to similarly qualified applicants, it would violate Fair Credit laws. Lenders should not make exceptions for one without making exceptions for all.