How to Get the Lowest Mortgage Rate
Your mortgage rate makes a huge difference in how much you’ll pay over the life of your loan. Even a small change in your interest rate can add up to thousands of dollars. So, how do you get the most affordable rate?
The good news is, there are plenty of ways to boost your chances of locking in a lower rate.
In this guide, we’ll explain what drives mortgage rates, show you how to improve your chances of landing a low one, and help you decide if buying down your rate is worth it. We’ll also cover how second home rates compare to those for primary residences.
Ready to lock in a great rate? Get started with Rate’s Same Day Mortgage and see what you qualify for—fast and easy.
What Determines Your Mortgage Rate?
Before we get into how to lower your mortgage rate, it’s helpful to understand what factors lenders look at when deciding what rate to offer you.
Credit Score
Your credit score is one of the most important factors that determines your mortgage rate. A higher credit score signals to lenders that you're less risky to lend to, which typically translates into a lower interest rate.
A score of 740 or higher is considered excellent and will help you secure the best rates. If your score is on the lower side (below 620), you’ll likely see higher rates and might struggle to qualify for a loan.
Loan Type
The type of loan you choose can also impact your mortgage rate. Conventional loans, which are not backed by the government, usually come with the lowest rates for borrowers with strong credit.
On the other hand, government-backed loans like FHA, VA, and USDA loans tend to offer more lenient qualification requirements but may come with slightly higher rates.
Loan Size and Down Payment
The size of your loan and the amount you put down upfront also play a big role. A larger down payment reduces the risk for the lender, which often results in a lower interest rate.
If you can put down 20% or more, you’re likely to get a better rate. The more equity you have in your home from the start, the lower your rate will likely be.
Loan Term
Shorter loan terms (like 15-year mortgages) typically come with lower rates than longer terms (like 30-year mortgages). This is because lenders take on less risk when you’ll be paying off the loan more quickly.
While your monthly payments will be higher with a shorter term, you’ll save a larger amount of money in interest over the life of the loan.
Market Conditions
Finally, the overall state of the economy and mortgage market also affects interest rates. Rates tend to rise when the economy is strong and fall during times of economic uncertainty or recession.
Unfortunately, this is one factor you can’t control, but staying aware of trends in the market can help you time your mortgage application better.
How to Get the Lowest Mortgage Rate
Now that you know what factors determine your mortgage rate, let’s talk about how to take control of the process and secure the lowest rate possible. There are plenty of ways you can improve your chances.
Shop Around and Compare Multiple Lenders
Don’t settle for the first rate you’re quoted. Lenders often offer different rates, so it’s worth shopping around. Whether you go to your bank, check out online mortgage lenders, or work with a mortgage broker, comparing rates from multiple lenders can help you find the best deal.
You don’t need to apply with every lender, but getting quotes from at least three can give you a better sense of the rates available to you.
Improve Your Credit Score
Since your credit score has a major impact on the rate you’ll get, it makes sense to work on improving it before you apply for a mortgage.*
Start by paying down credit card debt, disputing any inaccuracies on your credit report, and making sure you pay all your bills on time. If you’re planning to buy a home in a few months, it’s worth taking some time to give your score a boost.
Make a Larger Down Payment
The more you can put down upfront, the better. A larger down payment reduces the loan amount and the lender’s risk, which could translate into a lower interest rate. If you can swing 20% or more, you’ll be in a strong position to get a better rate.
If you’re not able to put down 20%, don’t worry—just keep in mind that a smaller down payment could lead to higher rates, or you may need to pay for private mortgage insurance (PMI).
Choose a Shorter Loan Term
While most homebuyers choose a 30-year mortgage, a 15-year mortgage typically offers a lower interest rate. While your monthly payments will be higher, you’ll pay off the loan faster and save a lot of money in interest.**
If you can comfortably afford the higher monthly payments, going with a 15-year loan could be a smart way to secure a lower rate and pay off your home faster.
Choose a Fixed-Rate Mortgage
Although adjustable-rate mortgages (ARMs) might offer a lower initial rate, they can increase over time, leaving you with higher monthly payments down the road. If you’re looking for stability, a fixed-rate mortgage is the safer bet.
A fixed-rate mortgage will keep your monthly payments the same for the life of the loan, making it easier to budget and plan long-term.
Keep Your Debt-to-Income Ratio Low
Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying off debts. A lower DTI makes you less risky to lenders, which can help you secure a better mortgage rate.
To improve your DTI, focus on paying down existing debt and avoid taking on new debt before applying for a mortgage.
Avoid Big Purchases Before Applying
Taking out a car loan or making other large purchases before applying for a mortgage can increase your DTI and hurt your chances of securing a low rate.
Keep your finances stable and avoid opening new credit cards or taking on additional debt until your mortgage is approved.
Look at the APR, Not Just the Interest Rate
When comparing mortgage offers, make sure you’re looking at the annual percentage rate (APR), not just the interest rate.
The APR includes not only the interest rate but also any fees associated with the loan, like closing costs or points. This gives you a clearer picture of the total cost of the loan.
Is It Worth It to Buy Down Your Rate?
One strategy for securing a lower mortgage rate is buying down your rate. This means paying upfront to lower the interest rate on your loan. But is it worth it?
What Is a Mortgage Rate Buydown?
A rate buydown is when you pay upfront, in the form of “points,” to reduce your interest rate. Each point typically costs 1% of your loan amount and can lower your interest rate by about 0.25%.
If you have the funds available, buying down your rate can be a good move to save on interest over the long term.
When Does a Buydown Make Sense?
A rate buydown is a good option if you plan to stay in the home for a long time. The upfront cost of the points is offset by the savings you’ll see in interest payments over the years.
If you’re planning to sell or refinance in a few years, though, it might not make sense to pay extra upfront for a lower rate.
Long-Term Savings vs. Upfront Costs
Before deciding to buy down your rate, calculate how much you’ll save in interest over the life of the loan versus the upfront cost of the points. If the break-even point is many years away, it might not be worth it.
Use our mortgage calculator to help you determine if the cost of the points will pay off in the long run.
Second Home Mortgage Rates
If you’re purchasing a second home, the mortgage rate you’re offered will likely be different from what you’d get for your primary residence. Here’s what you need to know.
How Second Home Mortgage Rates Differ
Second home mortgage rates are usually a bit higher than primary residence rates. Lenders consider second homes to be a higher risk because they’re often vacation homes, which means you may not be as committed to making payments if your financial situation changes.
You may also be asked to make a larger down payment—usually 20% or more.
Financing Options for Second Homes
For second homes, you can still apply for conventional loans, but you’ll generally need to provide a larger down payment than you would for a primary home.
Government-backed loans like FHA or VA loans are usually not available for second homes. However, if you have the financial stability to cover a second mortgage, conventional financing could work.
Tips for Qualifying for a Second Home Mortgage
To qualify for a second home mortgage, lenders will look at your credit score, income, and debt-to-income ratio, just like they would for a primary residence.
But they’ll also want to ensure you can handle both your primary mortgage and the one for your second home. Make sure you’re in a good financial position before applying to avoid any surprises.
Ready to Take the Next Step?
You now know how to work the system to get the lowest mortgage rate possible, from improving your credit to shopping around for the most suitable deal. The next step? Getting a tailored mortgage offer that’s right for you.
With Rate’s Same Day Mortgage, you can skip the guesswork and get a personalized loan offer fast—no waiting, no hassles. It’s simple, fast, and a great way to take the next step on your homebuying journey.
*Rate, Inc. does not provide credit counseling or credit repair services.
**Savings, if any, vary based on consumer’s credit profile, interest rate availability, and other factors. Restrictions apply.
***Both temporary and permanent RateReduce options are available from participating builders and sellers on select properties. The 1.5/.5 temporary buydown option is not available for VA loans. Buyer paid RateReduce options are also available for qualified borrowers on any approvable property per loan product restrictions.
Rate, Inc. has no affiliation with the US Department of Veterans Affairs.