The rate of a mortgage loan usually depends on many things. Some common factors are your credit score, loan amount, loan duration, etc. If you have a high credit score then you can expect to have a low mortgage rate. If you consider the current loan market then definitely 3.25 is a good mortgage rate. However, many lenders offer mortgage loans at 2.5% and even 1.75% on 15-year loans but it mostly depends on your credit score.
Key Takeaways
- The mortgage rate is the rate of interest that is charged by the lender on a mortgage
- The Mortgage rate is determined by the lender and sometimes the rate is fixed depending on the company
- If you have an excellent credit score then you could see mortgage rates in the 2.5–3% range
- The mortgage rate mostly depends on your personal finances, the better your personal finance the better your mortgage rate will be
- There are quite a few factors available that determine the mortgage rate, which include credit score, loan type, interest rate type, down payment, location, etc.
What’s A Good Mortgage Rate?
Usually, the mortgage rate changes very frequently so it is very difficult to find the best mortgage rate and within seconds an excellent mortgage rate could look drastically different. Throughout the first half of this year, the best mortgage rates have been in the high–2% range. Therefore, a good mortgage rate could be around 3% to 3.25%. But you should understand that these numbers vary a lot from one borrower to another. If you have an excellent credit score then you could see mortgage rates in the 2.5–3% range. At the same time, if you have a low credit score then your mortgage rate could be as high as 3% to 4% range.
Current Mortgage Rate Trends
The mortgage rate mostly depends on your personal finances. The good your personal finance the better your mortgage rate will be. For the last 7/8 months of 2021, the average mortgage rates have been low. Therefore, it has allowed the most qualified borrowers to access historically low rates. But there is no guarantee that this low mortgage rate will remain low in 2022 and beyond. Below is the average mortgage rates by loan type –
| Type | December 21 | November 21 | October 21 | September 21 | August 21 | July 21 |
| Conventional loans | 3.05% | 2.99% | 3.16% | 3.14% | 3.31% | 3.2% |
| FHA loans | 3.13% | 3.1% | 3.23% | 3.25% | 3.33% | 3.25% |
| VA loans | 2.73% | 2.64% | 2.8% | 2.7% | 2.9% | 2.75% |
| Jumbo loans | 3.02% | 2.97% | 3.1% | 3.2% | 3.3% | 3.13% |
How To Get The Best Mortgage Rate?
If you are looking for the best mortgage rate for your situation then you should shop around with multiple lenders. According to research from the Consumer Financial Protection Bureau (CFPB), more than half of the borrowers do not compare quotes when shopping for a home loan. It means they are losing out on substantial savings. Moreover, the interest rate also helps determine your monthly mortgage payment as well as the total amount of interest you’ll have to pay during the loan period. You might think that a half of a percentage point might not make a big difference but it’s completely wrong. If you can decrease half of a percentage of your mortgage loan then you can easily save a significant amount of money. While applying for a Mortgage loan make sure you compare quotes from three to four lenders to make sure you are getting the most competitive mortgage rate for you. Moreover, if the lenders can understand that you are comparing with other lenders then the lenders might be willing to waive certain fees or offer better terms depending on your credit score.
Credit Score And Mortgage Rates
A credit score is one of the biggest factors in determining the mortgage rate. Below are the FICO’s annual percentage rate (APR) estimates for different credit tiers –
| Credit Score Range | 30-Yr Mortgage APR* |
| 620-639 | 4.231% |
| 660-679 | 3.255% |
| 760-850 | 2.642% |
***Mortgage rates are based on national averages and estimated by myFICO.com. Your own interest rate will be different***
What Determines Mortgage Rate?
There are quite a few things that lenders consider when determining mortgage interest rates. Some important factors are –
1. Credit Score
2. Down Payment
3. Loan Type
4. Loan Terms
5. Interest Rate Type
6. Loan Amount
7. Location
1. Credit Score
Credit score has the biggest impact on your mortgage rate because credit score measures how likely you’ll repay the loan on time. The higher your credit score is, the lower your mortgage rate will be. Therefore, before looking for lenders make sure you check your credit score to know your current score.
2. Down Payment
Down payment also plays important role in the mortgage rate. Generally, the higher your down payment the lower your interest rate will be. This is because when you make a big down payment it means, you’re viewed as a less risky borrower than someone who finances the entire purchase. For example, if you are not able to put at least 20 percent down, then most lenders require Private Mortgage Insurance (PMI). It will add an extra cost to your overall monthly mortgage payment.
3. Loan Type
The mortgage rate also depends on the loan type. Usually, there are various types of mortgage loans available with different eligibility requirements. Moreover, all types of loans aren’t offered by all lenders. A different lender offers a different loan. Some common types of mortgage loans are conventional, FHA, USDA, VA loans, etc.
4. Loan Terms
The loan term indicates the total duration of the loan. It indicates how long you have to repay the loan. Usually, a shorter loan term has a lower mortgage rate but higher monthly payments. Exactly how much lower your interest rate and how much higher the monthly payment will depend a lot on the specific loan term and interest rate type you choose.
5. Interest Rate Type
Mortgage loans have two types of interest rates: fixed and adjustable. If your mortgage has a fixed-rate type then it will remain the same for the entire loan term. On the other hand, adjustable rates have an initial fixed period and it will fluctuate after that fixed period based on the current market rates for the remainder of the loan.
6. Loan Amount
Your loan amount also plays a very important role in the mortgage rate. If you have a big loan amount then your mortgage loan will have a higher interest rate. Usually, the loan amount is calculated by the home price plus closing costs minus your down payment. Therefore, if the loan amount is smaller or larger than the limits for conforming loans may pay higher interest rates too.
7. Location
The mortgage rate also varies depending on your location, which state you live in etc. Based on the location some loans like the USDA loans offer lower mortgage rates than conventional mortgage options for eligible borrowers.
Strategies To Get A Lower Interest Rate
If you are wondering how to get a lower mortgage rate then you can follow the below strategies –
1. First, pick a type of mortgage that suits your requirements
2. Now compare all the available lenders to find the best deal for you; this way you can save lots of money
3. Next, compare the mortgage Loan Estimates carefully; make sure you pay close attention to the APR and the total you’ll pay in the first five years of your loan
4. Contact the lender and try to negotiate for a better rate or lower fees
5. Then try to buy discount points if you can comfortably afford them
Before applying for a mortgage loan make sure you –
1. Improve your credit score as much as you can
2. Reduce your debts
3. Try to save a big down payment
FAQs About Is 3.25 A Good Mortgage Rate? What Determines Mortgage Rate?
What’s A Good Mortgage Rate In 2021?
The lowest mortgage rate in 2021 was in the high 2 percent and low 3 percent range. What will be your best mortgage rate mostly depends on your personal credit profile, down payment amount, income, the current debt amount, etc.
Is 2.875 A Good Mortgage Rate?
Yes, 2.875 is a good mortgage rate. In fact, this rate is just a fraction of a percentage point higher than the lowest–ever recorded mortgage rate on a 30–year fixed-rate loan.
What Is The Lowest Mortgage Rate Ever?
2.65 percent is the lowest average mortgage rate ever recorded by Freddie Mac’s Primary Mortgage Market Survey. This mortgage rate was recorded in the first week of 2021.
Is It Better To Have A Lower Interest Rate Or APR?
The answer to this question depends on how long you plan to keep the loan. If you will pay the loan amount early then a lower APR rate will be the best option for you. On the other hand, if you have a long loan term then a lower interest rate will be the best option for you.
References:
1. https://time.com/nextadvisor/mortgages/30-year-mortgage-rates/
2. https://www.investopedia.com/best-20-year-mortgage-rates-5097244
Last Updated on October 25, 2022 by Magalie D.
Magalie D. is a Diploma holder in Public Administration & Management from McGill University of Canada. She shares management tips here in MGTBlog when she has nothing to do and gets some free time after working in a multinational company at Toronto.
