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Home loan interest rates may not decrease significantly in the coming months, but individuals should not necessarily postpone their homebuying plans. Current mortgage rates advertised online represent general averages based on lender offerings at a specific time. Your individual financial situation could qualify you for a notably reduced rate. By actively working to enhance your creditworthiness and engaging in negotiations with various lenders, you can potentially secure more favorable mortgage terms.
Lower Interest Rates Yield Savings
A single percentage point reduction in your mortgage rate can result in approximately 10% savings on your monthly mortgage payment, accumulating to substantial savings amounting to tens of thousands of dollars over the duration of the loan.
Consider an example: purchasing a home for $400,000 with a 20% down payment on a 30-year fixed-rate mortgage. The difference between a 7% rate and a 6% rate translates to monthly savings of $210.
Below is a comparison of monthly mortgage payments for the same property at 7%, 6%, and 5% rates:
Strategies to Obtain a More Affordable Mortgage Rate Today
Implementing some or all of the following strategies could potentially lower your rate by 1% or more:
1. Enhance Your Credit Score
If your credit history requires improvement, take measures to boost your credit score before applying for a mortgage. Lenders assess your credit score to determine your eligibility for a home loan and the associated interest rate. FICO credit scores range from 300 to 850, with 850 being the highest. Superior scores indicate responsible debt management, thereby reducing lender risk. This can aid in securing a reduced interest rate resulting in considerable savings.
“The most advantageous mortgage rates and offerings are generally reserved for individuals with a credit score of 740 or higher,” stated Sarah DeFlorio, Vice President of Mortgage Banking at William Raveis Mortgage.
According to a 2024 Lending Tree analysis, borrowers who improved their credit score from the “fair” range (580-669) to the “very good” range (740-799) achieved a 0.22% reduction in their interest rate. This rate difference enabled borrowers to save $16,677 over the life of a home loan.
2. Increase Your Down Payment
Your down payment represents the initial capital you contribute towards your home acquisition. While each home loan type has a minimum down payment requirement, typically ranging from zero to 5%, a larger down payment can secure a more favorable interest rate. This is because lenders assume less risk when you contribute a greater portion upfront.
Given that a down payment not only decreases your mortgage rate but also builds your home equity, financial experts often advise making a substantial down payment of at least 20%.
3. Consider an Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) is a home loan featuring a fixed rate for an initial period, such as five years. Following this introductory period, the interest rate can fluctuate at regular intervals throughout the remaining loan term.
The primary appeal of ARMs is their typically lower initial interest rate compared to conventional mortgages. Generally, the average 5/1 ARM rate is approximately 0.5% lower for the initial years compared to the average rate for 30-year fixed-rate mortgages.
4. Negotiate Your Mortgage Rate
When applying for mortgage loans, you are not obligated to proceed with the company that provided your preapproval. Research indicates that obtaining rate quotes from multiple lenders and comparing proposals can lead to significant savings.
To leverage this strategy, begin by submitting mortgage applications to lenders aligning with your needs. Once you possess several loan estimates, utilize the most attractive offer to negotiate with your preferred lender.
The loan officer might reduce your rate, offer savings on closing expenses, or provide additional incentives to secure your business. A 2023 LendingTree survey revealed that 39% of homebuyers negotiated the interest rate on their recent home purchase, with 80% of them successfully obtaining improved terms.
5. Select a Shorter Home Loan Term
Approximately 90% of homebuyers opt for a 30-year fixed mortgage term due to its flexibility and manageable monthly payments. While payments are lower due to the extended repayment period, borrowers retain the option to make additional principal payments.
However, with longer-term home loans, “you are holding the lender’s funds for an extended duration, representing an opportunity cost for those funds to be invested elsewhere,” explained Nicole Rueth, SVP of the Rueth Team Powered by Movement Mortgage.
Shorter loan terms, such as 10-year and 15-year mortgages, along with ARMs, often offer lower interest rates, enabling you to potentially reduce your current rate.
Choosing a shorter repayment term can lead to cost savings by minimizing overall interest payments. However, avoid the homebuying mistake of selecting a shorter loan term solely for a lower rate. Shorter terms entail reduced repayment periods, resulting in higher monthly payments. Therefore, ensure these payments are compatible with your budget.
6. Purchase Mortgage Points
A mortgage point, alternatively termed a discount point, is an upfront fee payable to the lender in exchange for a reduced interest rate on your home loan. Nearly half (45%) of homebuyers employed this tactic in 2022, according to Zillow research.
Each point typically costs 1% of the home purchase price and commonly reduces the rate by 0.25%. For a $400,000 home, one discount point would cost $4,000. Lenders may permit the purchase of up to four mortgage points to reduce a 7% rate to 6%, although this would necessitate an upfront cost of $16,000.
To ascertain the value of this approach, compare the total cost of points to the overall monthly savings. In this scenario, paying $16,000 for four points to save $210 monthly would necessitate over six years to reach the break-even point.
Some experts advise allocating extra funds toward a down payment instead of purchasing points. This is because selling or refinancing prior to reaching the break-even point results in financial loss, whereas down payment funds contribute to your equity.
7. Acquire a Temporary Mortgage Rate Buydown
A temporary mortgage rate buydown involves paying a closing fee to lower your interest rate for the initial years of the loan term. Due to the significant initial expenditure, this strategy is financially viable primarily when a third party covers the fee. Home builders, sellers, and some lenders may offer to cover buydowns to stimulate sales, especially during periods of elevated market rates.
For example, a lender might propose a “3-2-1” buydown, reducing the interest rate by 3 percentage points in the first year, 2 percentage points in the second, and 1 percentage point in the third. From the fourth year onward, the full rate applies for the loan’s remainder.
Buyers frequently utilize temporary buydowns anticipating future refinancing. Buydown funds are typically refundable and can be applied to closing costs during refinancing if rates decline.
Is a 6% Mortgage Rate Considered Favorable?
The majority of U.S. adults would only contemplate purchasing a home if rates were to decrease to 4% or lower. However, most mortgage projections do not anticipate average rates falling below 6% this year.
Historically, a favorable mortgage rate generally aligns with or falls below the national average. The 30-year fixed mortgage rate average since 1971 has been 7.72%, according to Freddie Mac. In the past year, average mortgage rates primarily fluctuated between 6% and 7%.
In this context, securing a rate in the mid- to low-6% range is considered quite good, according to DeFlorio.
However, affordability is subjective and depends on your overall financial circumstances. Given the daily and even hourly fluctuations in mortgage rates, the definition of a “good” rate can rapidly change.
“The current obtainable rate is what truly matters,” asserted Colin Robertson, founder of The Truth About Mortgage. According to Robertson, assessing whether you are receiving a beneficial deal necessitates consulting with several lenders and brokers and comparing their quotes against prevailing daily or weekly averages.
Further reading: Still Chasing 2% Mortgage Rates? Here’s Why It’s Time to Let Them Go
Should Home Purchase Be Considered in 2025?
Homebuying is a personal decision that should align with your individual circumstances and financial plan. During your home search, explore various rate reduction strategies and prioritize elements within your sphere of control. A mortgage calculator can assist in estimating your anticipated monthly payments.
“If monthly payments are manageable for you, fixating on a specific rate is unnecessary,” DeFlorio advised. “Particularly considering that if prices continue to escalate, delaying purchase may result in a higher acquisition cost.”
Additionally, the current market exhibits significant uncertainty, especially with a new presidential administration in the U.S. Attempting to time the market may be counterproductive.
“Market timing is often inaccurate,” Robertson stated. “The homebuying decision should be based on factors extending beyond just the mortgage rate.”