Mortgage Rates Are Volatile Right Now. You Can Get the Best Rate In Any Market By Doing These 11 Things

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Scoring a good mortgage rate is a big piece of the homebuying puzzle. 

But recently, mortgage rates have been going through a sort of tug-of-war in the market. Growing concerns over the Omicron variant of COVID-19 and new waves of COVID cases threatening economic progress are putting downward pressure on mortgage interest rates, Zillow economist Nicole Bachaud recently told us.  

Adding to the mix, the November 2021 consumer price index reported the largest inflation surge in 39 years. In response to rising inflation, the latest announcement by Federal Reserve Chairman Jerome Powell offers new evidence for what experts have long forecasted: mortgage rates will continue to rise into next year.

For people entering the housing market or looking to refinance, financial experts agree that scoring the best mortgage rate can save you thousands of dollars. A mortgage interest rate is how much you pay your lender for borrowing your home loan and even a slight difference matters. 

You can’t control the economic factors influencing rates. But here are 11 steps you can take now to get the best rate for you—no matter what’s happening in the market. 

The Financial Difference Between Two Mortgage Rates 

Never settle on the first lender you get a quote from. According to research from the Consumer Financial Protection Bureau, interest rates between mortgage lenders can vary by 0.5% or more for similarly qualified borrowers. To secure the best rate, fees, and terms for your situation, most financial experts recommend comparing at least two to three different quotes. 

Here is the difference in dollars between two different mortgage rates on a new purchase with a $300,000 home loan:

Loan Amount30-Year Fixed Interest RateMonthly Mortgage Payment: Principal & Interest Total Interest Paid
Loan A$300,0003.25%$1,305$170,177
Loan B$300,0002.5%$1,185126,794
Difference   –0.75%$120$43,383

In this example, there is a 0.75% difference between Loan A and Loan B. Loan B costs $120 less per month and a total of $43,383 less in interest over the loan’s life. 

Here’s How to Get the Best Mortgage Rate Right Now

No matter if rates are at record highs or lows, here are 11 timeless steps borrowers can take to help ensure they get the best mortgage rate in any economic environment.

1. Work on Improving Your Credit Score

Your credit score is one of the biggest factors in getting approved for a home loan with the lowest rate available.

“Your rate will go up or down for every 20-point change in your score,” says John Bergquist, managing member of Lift Financial in South Jordan, Utah. “Any derogatory credit event, for example, late payments, collections, or judgments will adversely affect your score.”

Negative marks heavily impact your score for the first two years after the incident, Bergquist says. They’re less impactful as time goes on. But if you continue to build up your credit, like paying off debt and increasing your credit limit, you’ll be able to boost your credit score even with negative marks on your report.

2. Prepare Records and Documents

Having your paperwork in order is crucial when getting preapproved for a home loan with the lowest interest rate available. Rates change every day and are predicted to increase into 2022. You could miss a low rate opportunity if your lender is waiting for you to turn in necessary documents.

If you plan on applying for a mortgage or a refinance in the near future, get ahead by keeping a folder on your computer easily accessible with a few recent documents, including:

  • Bank statements
  • Tax returns
  • Statements from insurance, savings, and investment accounts
  • Pay stubs
  • W2s

If you work outside of the home, keep these documents on a flash drive for you to open at your work computer. Any time a new month closes, make it a habit to download a new PDF of the most recent statement and add it to your folder or flash drive. 

3. Save for a Down Payment

Traditional advice would tell you that you need a 20% down payment to buy a home. While many lenders offer loans with low down payments or even 0% down, having some sort of down payment will help you in the long run. 

The larger your down payment, the less you have to pay over the course of your mortgage — which comes with interest. While you can get a government-backed loan for little or no money downVA, USDA, and FHA — conventional mortgages backed by private lenders want you to have 20% down, or you’ll get a loan with private mortgage insurance. PMI protects your lender in case you stop making payments. But it’s only required on loans with less than 20% down. A low interest rate will be offset by PMI payments. If you have 20%, you don’t need PMI and you can secure a low-interest rate as well as low monthly payments.

4. Consider a 15-Year Fixed-Rate Mortgage

Most people choose 30-year mortgages because they have the lowest monthly payments. But there are other mortgage options available, like paying it off in half the time with a 15-year loan.

“Interest rates are usually lower on a 15-year mortgage as compared to 30-year home loans,” says Lyle Solomon, principal attorney at California-based Oak View Law Group. “In a 15-year mortgage, borrowers repay the loan faster; therefore, lenders offer the loans at a relatively lower interest rate.”

While monthly payments might be higher compared to 30-year loans, your interest rate will be lower. This means you’ll pay less in total interest over the total life of the loan compared to other home loan options. 

“It may be a good idea to opt for a 15-year mortgage over a 30-year mortgage if you can afford a larger monthly payment,” says Leslie Tayne, the founder and head attorney at Tayne Law Group in New York. “However, if you’d like the financial breathing room of a lower monthly payment, the longer-term loan might be a better bet.”

A 15-year mortgage isn’t the best option for everyone. But if you can afford to pay off your home sooner with larger monthly payments, you may want to consider the lower rate that comes with a 15-year fixed-rate mortgage.

5. The Size of the Loan Counts 

The larger the loan amount, typically the higher the interest rate. Home loans exceeding the conforming limits set by the FHFA will need a jumbo loan. Jumbo loans have stricter lending requirements and higher interest rates. If you truly want the lowest or best mortgage rate possible, you may want to consider shopping for a home under these limits in your area. 

The 2021 conforming loan limits are: 

  • 548,250 for most of the U.S.
  • $822,375 for high-cost areas, such as New York City, Los Angeles, Washington, D.C., and Hawaii
  • You can find the conforming loan limits in your area using this map from the Federal Housing Finance Agency.

6. Shop and Compare Multiple Mortgage Lenders

Even a small difference in interest rates can help you save thousands of dollars over the life of the loan. That is why it is important to compare multiple lenders offers, 

While a reputable history with customer satisfaction is an important factor, to ensure you’re getting the best rate possible, look for a lender that has transparent pricing. You’ll want to know all the fees included in the pricing, not just the rate. Closing costs could offset a low rate, so it’s important to find a lender that breaks down its rate and fees in a transparent way. 

“Your loan officer’s experience and customer service are critical parts of getting the right mortgage,” Bergquist says. “For example, do you take a slightly higher interest rate and pay lower upfront fees or do you pay higher upfront fees in exchange for the lowest possible rate?”

Talking to a few different lenders and doing upfront research can give you an idea of what’s available for your personal needs and terms. If you don’t, you won’t know if another lender is offering a better deal. 

“Without shopping around, a borrower won’t know if another lender is offering a better deal,” Solomon says. “Shopping around helps a borrower to get more favorable terms and conditions and save them money in the long-term.”

Home loan comparison calculator

Compare your payment options side-by-side to see which is right for you and your financial situation.

Find the mortgage that’s best for you by comparing the cost of multiple loans over time.

7. Utilize the Rate Lock Option

A rate lock — sometimes called a lock-in — is when you “lock in” the interest rate you’re offered, and it won’t change between when you get the offer and when you close on your home, as long as you close within a specified time frame.

Locking in a rate is a great way to secure the lowest possible interest rate, but it doesn’t always work in your favor. If a lower interest rate becomes available, you might be locked into your higher rate. Along with that, your closing might take longer than the terms outline, which means you could lose the rate you were locked into.

Also keep in mind that even if you lock in a specified rate, it can still change. “The rate can change if there’s a change in the application, including the loan amount, verified income, and credit score,” Solomon says.

Some lenders offer a rate lock extension if rates decrease after the lock-in. This is a good question to ask when shopping around and vetting lenders. 

8. Don’t Time the Market

If refinancing or buying a home is the right financial decision for you, don’t wait for a dip in the market to make a move. With the recent rate volatility in recent weeks, it’s almost impossible to time. “It’s hard to predict what rates will do in the future, much like the stock market,” Bergquist says. “We are currently near historic lows. With this in mind, I would not suggest waiting and trying to time the market.”

9. Consider Discount Points 

Buying discount points — or mortgage points — lets you pay money upfront to the mortgage lender in turn for lowering your interest rate. 

“Mortgage points aren’t necessarily good or bad,” Tayne says. “Whether you should consider purchasing them depends on how long you plan to stay in the home [or] keep your current mortgage beyond the breakeven point.”

If you can afford the upfront costs and plan to stay in the home for a long time, you may want to purchase discount points. But the added expense could take away from your down payment or additional costs to put into your new home. If you need that money to go elsewhere, discount points might not work for you.

10. Look Into First-Time Homebuyer Programs

Being a first-time homebuyer has its perks. First-time homebuyer programs can offer borrowers competitive interest rates, along with lower closing costs and downpayment assistance. Some programs are specific to your location, while others might be offered by certain lenders. “Many first-time homebuyer programs offer financial assistance for your down payment and closing costs,” Tayne says. “You should check for federal initiatives, local grants, lender-specific programs, and even employee benefits.”

Pro Tip

For free home buying guidance, you can seek out a HUD-approved housing counselor.  They are sponsored by the U.S.Department of Housing and Urban Development (HUD).

Here is a page dedicated to first-time homeyer programs by state. But make sure to ask your lender if there are any available where you’re applying for a loan. 

11. Pay Attention to the APR and Closing Costs

Securing the lowest interest rate isn’t the only factor you need to consider when comparing offers. Two lenders can advertise the same interest rate but charge wildly different closing fees

Closing costs are fees and charges you pay upfront to close on your home — things like title insurance, prepaid interest, and broker fees. Closing costs can be upwards of 6% of your home’s purchase price. Keep in mind, if you don’t have the cash on hand to pay for closing costs upfront, you could roll the cost into your mortgage payment. But it’s expensive. “If the borrower opts to add the closing costs to the mortgage loan, the mortgage rate can increase,” Solomon says. “Paying closing costs upfront might help to save money.”

A low rate with high closing costs can eat away at the savings you thought the low rate provided. One way to evaluate the difference between offers is to look at the loan’s APR. The APR (annual percentage rate), is the mortgage interest rate plus the closing costs rolled into a percentage. The APR is considered the true cost of the mortgage since it accounts for both the interest rate and other costs associated. 

Consider this example on a 30-year fixed, $200,00 loan:

Loan Amount Interest RateClosing CostsAPR
Loan A$200,0003%$6,0003.233%
Loan B$200,0003.125%$2,0003.204%

Loan A is the more tempting offer since it has a lower interest rate, but higher lender fees. Loan B may be overlooked because of its higher interest rate. But it has lower lender fees and a lower overall APR. 

When comparing offers, the best apple-to-apples comparison is comparing the APR on each Loan Estimate. The best approach is to do plenty of research, narrow it down to a list of two to three, get prequalified with each, and compare the Loan Estimates side by side.

Bottom Line

In order to truly get the best mortgage rate, ignore what you can’t control and focus on what you can control: your own actions. More important than a low mortgage rate is to make sure you buy a home you can afford by setting up and sticking to your budget. If you’re unsure what that budget is, a good first step is to use a mortgage calculator to determine your monthly costs.