7 Ways to Lower Your Mortgage Rate by 1% or More | Global News Avenue

If you’re looking to buy a home, you probably know that housing affordability is declining. All-time high prices and elevated mortgage interest rates A double whammy for potential buyers around the world.

A recent CNET survey found that half of U.S. adults would actually consider buying a home or refinancing their existing mortgage if: Interest rates will drop to 4% or below. Yet most mortgage forecasts don’t even have average rates falling. Less than 6% in 2025.

But average mortgage rates are just average. Depending on your financial situation, the interest rate you qualify for may be significantly lower than the rate advertised by the lender. A 1% difference in your mortgage rate can save you hundreds of dollars each month and tens of thousands of dollars over the life of your loan.

you can’t control Market forces affecting mortgage rates. However, optimizing your credit score and negotiate with multiple lenders can help you get below-average interest rates on your future home loans.

What is considered a “good” mortgage rate?

In a historical sense, Good mortgage rates Overall at or below the national average. this 30-Year Fixed Mortgage Rate The average interest rate since 1971 is 7.72%, according to Freddie Mac. Last year, average mortgage rates mostly fluctuated between 6% and 7%.

With that in mind, interest rates in the low to mid 6% range are pretty good. Sarah DeFlorioWilliam Raveis Mortgage Vice President, Mortgage Banking.

But affordability has to do with your overall financial situation. Since mortgage rates can change on a daily or even hourly basis, the definition of a “good” rate can change quickly.

“What matters is the price you can get today,” says founder Colin Robertson. The truth about mortgages. Robertson says the only way to know if you’re getting a good deal is to talk to a few different lenders and brokers and then compare their offers to the daily or weekly averages.

Read more: Still chasing 2% mortgage rates? That’s why it’s time to let them go

How does a 1% difference affect your monthly mortgage payment?

Lowering your mortgage rate by even 1 percentage point can have a significant impact on your budget, amounting to savings of approximately 10% on your monthly mortgage payment.

For example, suppose you buy a house $400,000 and a 20% down payment on a 30-year fixed-rate mortgage. The difference between an interest rate of 7% and an interest rate of 6% means a monthly savings of $210, or $75,748 over the life of the loan.

Here’s a comparison of monthly mortgage payments for the same home at 7%, 6% and 5% interest rates:

Save money on your mortgage with these 7 tips

Improving your credit score, increasing your down payment, purchasing points, and negotiating interest rates can help you save money on your mortgage. Taking some (or all) of these steps can lower your rates by 1% or more.

1. Buy mortgage points

one Mortgage pointAlso called mortgage discount points, this is an upfront fee you can pay your lender in exchange for mortgage discount points lower interest rates Your home loan. Nearly half (45%) of homebuyers using this strategy when getting a mortgage in 2022, according to survey Zillow Research.

Each point is equivalent to 1% of the home purchase price and typically reduces the home price by 0.25%. On a home worth $400,000, you would pay $4,000 to receive one discount point. The lender might even let you buy four mortgage points to lower your interest rate from 7 percent to 6 percent, though you’d have to pay $16,000 to do that.

To check if this strategy is worth it, calculate the total cost of points and compare it to your overall monthly savings. In this case, when you pay $16,000 for 4 points and save $210 per month, it would take you more than six years to reach your break-even point.

2. Improve your credit score

Lenders look at your credit score Determine whether you qualify for a home loan and the interest rate you will receive. FICO credit scores range from 300 to 850, with 850 being the best score. A higher credit score shows that you have managed debt responsibly in the past and therefore reduces your risk to lenders. This can help you get a lower interest rate.

“The best mortgage rates and products are generally reserved for those with credit scores of 740 or higher,” DeFlorio said.

If your credit needs work, consider taking action Improve your credit score Before applying for a mortgage. It could help you save a ton of money, according to a 2024 report Lending tree research. When borrowers move from the “fair” credit score range (580 to 669) to the “very good” range (740 to 799), their interest rates decrease by 0.22%. This interest rate difference helped the borrower save $16,677 over the life of the home loan.

However, Robertson said, “It’s possible to get a good price with a lower score and just shop around to make up the difference.”

3. Increase down payment

your down payment Is the amount of money you can downpay for a home. Each type of home loan has a minimum down payment, Typically between 0% and 5%but a higher down payment can help lower your interest rate. This is because when you contribute more money to a loan, the lender takes on less risk.

Because a down payment lowers your interest rate and builds your home equitySome home loan experts recommend making a larger down payment, around 20%, rather than buying mortgage points. That’s because if you sell house or Refinance You will lose money until you reach your break-even point. But the amount of your down payment becomes part of your assets.

4. Apply for an adjustable-rate mortgage

one adjustable rate mortgageor ARM, is a home loan with a fixed interest rate for a set introductory period, such as five years. Once the term is over, the interest rate can rise or fall periodically for the remainder of the term.

The big appeal of ARMs is that their introductory interest rates are often lower than those on traditional mortgages. November, average 5/1 ARM ratio was 6.19%, compared to 6.79% 30-year fixed-rate mortgage.

5. Negotiate your mortgage rate

When you apply for a mortgage, you don’t have to apply with the company that takes out your mortgage pre-approved. In fact, research shows that from multiple lenders Comparing quotes can result in significant savings.

If you want to use this strategy, start by submitting a mortgage application to a lender that meets your criteria. Once you have a few loan estimates, use your best estimate to negotiate with the lender you want to work with.

A loan officer may lower your interest rate, helping you save money Closing costs Or offer other incentives to entice you to join. in a 2023 LendingTree Survey39% of homebuyers negotiated an interest rate on their most recent home purchase. Of this group of buyers, 80% were able to get a better deal.

6. Choose a shorter home loan term

Nearly 90% of home buyers choose 30 year fixed mortgage term Because it offers maximum flexibility and monthly payment affordability. The payments are lower because they are over a longer period, but you can always put more principal here and there.

But when you take out a long-term home loan, “you’re withholding the lender’s money, and there’s an opportunity cost to investing the money elsewhere,” he said. Nicole RuthSenior Vice President of the Rueth team powered by Liquid Mortgage.

Shorter loan terms, e.g. 10-year term and 15 year mortgage and ARMs have lower interest rates, so you can lower your rate now.

Choosing a shorter repayment term can help you save money because you’ll pay less interest in the long run. but don’t make Home buying mistakes Choose a shorter loan term just to get a lower interest rate. A shorter loan term means you have less time to repay what you borrow, resulting in higher monthly repayments, so it’s important to make sure they fit within your budget.

7. Get a temporary mortgage rate cut

A temporary mortgage rate reduction involves paying a fee at closing to lower the interest rate for the first few years of the loan term. Since the upfront costs are considerable, this strategy only makes financial sense if someone else pays for it. Homebuilders, sellers, and even some lenders may offer this type of buyout to facilitate a sale, especially if market interest rates increase.

For example, a lender might offer a “3-2-1” purchase, which cuts the interest rate by 3 percentage points in the first year, 2 percentage points in the second year, and 1 percentage point in the third year. Beginning in the fourth year, you pay the full interest rate for the remainder of the loan term.

Buyers often choose to buy temporarily and plan to refinance later. Your purchase funds are refundable, and you can apply them toward closing costs when you refinance (if interest rates do drop).

Should you wait for a more affordable mortgage?

Buying a home is a personal decision, so it should work for your situation and budget. When you’re shopping for a home, consider a variety of strategies to lower your interest rate and focus on factors within your control. one Mortgage Calculator Can help you estimate your monthly payments.

“If you’re happy with your monthly payments, you shouldn’t focus on a specific rate,” DeFlorio said. “Especially because if prices continue to rise, you may be paying a higher purchase price by waiting. “

Additionally, markets are particularly uncertain right now as the United States prepares to take action. new presidential administration. Trying to time the market can backfire.

“It’s so easy to go wrong,” Robertson said. “The decision to buy a home should go far beyond the mortgage rate.”

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