How to compare mortgage rates

Mortgage interest rates can make a big difference in what you’ll pay for your new home or mortgage refinance. When mortgage rates are high, borrowers spend more in interest, but when mortgage rates are low, borrowing becomes more affordable. However, mortgage rates change frequently, making it important to compare rates when you’re thinking about taking out a new loan. 

Learn more about mortgage interest rate trends, how they’re determined, and how to compare mortgage rates.

How to get the best mortgage rate for you

You could decrease your monthly mortgage payment and even save thousands of dollars in interest over the years by getting a low mortgage rate. Here’s how to get the best rate for you:

• Boost your credit: Work on improving your credit score, which can improve your chances of a lower interest rate. Lenders are looking for borrowers with a proven track record of repaying their loans. 
• Increase your down payment amount: If you can, make a larger down payment on the home. The less you borrow, the less risk you pose to the lender (and the more equity you’ll have in the home from the outset).
• Borrow less: You may be able to get a lower rate by borrowing a smaller amount. While a bigger down payment can help, buying a less expensive home can also help. Consider whether you truly want to buy at the top of your price range or if you can rein in your budget a bit.
• Explore your options: Different mortgages tend to have different interest rates, and there are alternatives to the traditional 30-year fixed. You may be able to get a lower interest rate by choosing an adjustable-rate mortgage (ARM), a 15-year mortgage, or a government-backed option like an FHA loan.
• Compare lenders: Shop around to see what lenders will offer you. Using an online prequalification tool will give you a good idea of what real-world rates you can expect.
• Pay points: Paying points on a mortgage is a way to pay down your rate by making a payment upfront. The amount you’ll pay and how much you can save will vary by lender.

How mortgage interest rates work

When you take out a mortgage, you promise to repay the mortgage lender what you’ve borrowed, which is called the principal. Mortgage interest is your cost of borrowing that money. The higher your mortgage interest rate, the more you’ll pay your lender in interest. 

Fixed-rate mortgages are the most common. With this mortgage type, the interest rate you receive at the beginning of the mortgage stays the same for the entire term. That’s why it’s so important to get the best rate you can; it’s the rate you’ll keep until you sell the home, pay it off, or refinance the mortgage loan.

Factors that influence mortgage rates

Mortgage rates change frequently. Some factors that influence these changes are out of your control, because they’re caused by larger economic forces, but others are within your power to change. The factors below have the greatest effect on mortgage rates:

Economic factors

• Inflation: When inflation rises, mortgage rates tend to increase, too.
• Central bank decisions: To combat inflation, the Federal Reserve may make adjustments to the federal funds rate. When that target rate rises, mortgage rates tend to follow.
• The bond market: There is a relationship between bonds and mortgage rates. When bond rates rise (especially 10-year Treasurys), mortgage rates tend to rise as well. 

Personal factors

• Your credit score: Lenders typically save their lowest rates for people with higher credit scores.
• Your loan amount: The loan amount, especially as compared to the value of the home (the loan-to-value ratio, or LTV), can affect your mortgage.
• Type of mortgage: Whether you choose a fixed-rate or adjustable-rate mortgage, or government-backed or conventional loan, can affect the interest rate you receive.
• Term length: Typically, longer terms come with higher interest rates.
• Home location: The location of your home matters, too, as your area’s local economy can affect the rates available.
• Type of property: Whether the home will be a primary residence, vacation home, or rental property affects the interest rate as well.

Mortgage rate trends

After over a year of high interest trends, rates could be poised to dip lower at the close of 2024. A cooler jobs report in August dropped mortgage interest rates to the lowest level in a year. In addition, The Washington Post reported that inflation grew at the lowest rate since 2021. Industry experts see an increased chance of the Federal Reserve making more than one cut if inflation continues to approach the central bank’s 2% goal.

Here’s how 15- and 30-year mortgage interest rates have changed: 

How to compare mortgage rates 

Research is key when comparing mortgage rates. Use these tips to compare mortgage rates and find the best deal:

• Shop around: Make sure to check several different lenders for rates. There can be a sizable difference between what one lender offers compared to what another one does.
• Get pre-approved: A mortgage pre-approval will give you the most accurate rates because it uses the same financial information as a mortgage application.
• Check different interest types: Get rates for both adjustable and fixed-rate loans.
• Ask about loan programs: You may be able to save money with an FHA, VA, or USDA loan, if you qualify.
• Consider paying for points: See whether your lender offers discount points to bring the rate down, and whether that’s an affordable solution for you.

Make sure you compare different loan options, too. The interest rate for a 15-year mortgage will typically be lower than the rate you’ll receive for a 30-year mortgage. You’ll pay more interest with a 30-year loan, but your monthly payments will be smaller. Here are some pros and cons to consider before taking out a 30-year mortgage:

Here are the pros and cons for a 15-year mortgage:

When comparing rates, use the annual percentage rate (APR), not the interest rate, as it will account for discount points, origination fees, closing costs, and other costs to help you make the most direct comparison.

Although it’s wise to look for a low mortgage rate, don’t let that be the sole deciding factor in your homebuying journey.

"Mortgage rates will drip lower throughout mid-summer, but that doesn't mean you should wait for rates to bottom out,” said Dan Green, CEO of Homebuyer.com. “If you find a home you love and the payments fit your budget, make your offer before the market gets crowded."

How to compare mortgage rates FAQ

Are mortgage rates going to drop this year?

According to the Wall Street Journal, mortgage rates will drop throughout 2024, but probably not to the rock-bottom levels they were just a few years ago. Interest rates took a tumble at the beginning of August, falling to the lowest point in over a year, according to The New York Times. By the end of 2024, average rates on a 30-year mortgage are forecasted to land between 6% and 7%

When does a rate lock make sense?

A rate lock freezes the mortgage interest rate on your loan until closing. If rates are rising, a lock will keep yours from changing When interest rates are dropping, a rate lock could actually lock you into a higher interest rate. Using a float-down option will let you lock the rate and give you the option to “float down” to a lower rate if rates drop.

What is a good home loan rate?

A good home loan rate is one that is at or below market trends. A good rate for you would be the lowest rate you can get considering your individual financial situation, which includes your credit score, the home you’re buying, the loan type, and how much you put down. Shopping around is the best way to ensure you get a competitive home loan rate.

What are mortgage points and how do they work?

Mortgage points (also called discount points) let you pay your lender a fee upfront in exchange for a lower interest rate. Generally, one point equals one percent of the loan amount. For example, if your mortgage is $300,000, a point could cost you $3,000. You can pay a fraction of a point, a whole point, or more than one point; the amount your interest rate will decrease as a result depends on the lender and its policies.

How is APR different from interest rates?

The interest rate measures how much it will cost you to borrow as a percentage of the principal. The APR calculates the interest you’ll pay, plus any fees, points, or charges, and expresses it as a yearly percentage. It compares the complete cost of different loans instead of using interest rates alone.