The criteria for a mortgage rate being ‘good’ may differ from one person to another. For instance, a mortgage rate of 6% may be flexible for a borrower. However, a mortgage rate of 4% will be more profitable for another. So, what is a good mortgage rate right now?
Well, you have to wait a little before revealing the answer. After all, the best mortgage rate for you can depend on a handful of factors like your loan amount, credit score, loan duration, and more. For instance, you can expect a comparatively lower mortgage rate if your credit score is high.
In addition, the mortgage rate varies depending on the loan repayment duration. The 3.25% mortgage rate is quite popular among borrowers and lenders. However, lenders might offer you a mortgage rate of up to 2.5% for a 15-year loan repayment duration. Let’s dig into some more facts about a good mortgage rate, what gets to decide a mortgage rate, and so on.
What’s a Mortgage Rate?
A mortgage rate refers to the interest rate charged by the associated lender on a mortgage. Generally, the lender decides the mortgage rate. Even a particular company can keep the mortgage rate fixed. By the way, what is a good mortgage rate?
Generally, the mortgage rate can vary from time to time. An example might clear out your confusion. For instance, a 5% or a similar range indicates a good mortgage rate if you consider 15-year fixed loan repayment. However, the same mortgage might demand a rate of 6% or some of the same range if you extend the loan duration to 30 years.
These are just samples and can vary from one lender to another. On the other hand, borrowers with higher credit scores can secure a minimum mortgage rate within the range of 3 to 5%. Let’s have a look at the current trends of mortgage rates depending on loan types:
- The mortgage rates for conforming loans were 6.72%, 6.45%, 6.40%, 6.68%, 6.16%, and 6.52% in May, April, March, February and January 2023 and December 2022 respectively.
- The figures were 6.67%, 6.38%, 6.37%, 6.43%, 6.12%, and 6.42% in May, April, March, February and January 2023 and December 2022 respectively for FHA loans.
- For VA loans, mortgage rates were 6.49%, 6.10%, 6.06%, 6.25%, 5.74%, and 6.25% in May, April, March, February and January 2023 and December 2022 respectively.
- Mortgage rates regarding Jumbo loans were 6.80%, 6.49%, 6.56%, 6.50%, 6.36% and 6.71% in May, April, March, February and January 2023 and December 2022 respectively.
What Decides the Mortgage Rate?
We have encountered the following contributing factors that can directly influence your mortgage rate. So, review them to learn the best mortgage rate of interest for you according to your financial situation.
Credit Score
Your credit score plays an important role in determining your mortgage rate. There’s an inverse relationship between these two factors. The lower your credit score is, the higher the mortgage rate you have to bear. The vice versa is also true. Lenders are curious about your credit score and overall credit history.
Type of Loan
The next deciding factor of mortgage rate of interest is the loan type; as you have already noticed, interest rates were different for different types of loans in the above section. In addition, diverse loans have different eligibility requirements.
On another note, not all lenders offer every type of loan. So, your mortgage rate will be determined by the type of loan you have applied for.
Down Payment
What is a good mortgage rate right now? Since it varies from one borrower to another, your down payment can also determine a good mortgage rate. A higher down payment secures a lower mortgage rate, usually.
This happens because the lender views you as a less risky borrower as you manage to pay a big down payment. For instance, you can escape Private Mortgage Insurance if you put a minimum of 20% down. Generally, Private Mortgage Insurance will include an extra cost to your monthly mortgage payment.
Loan Duration
A loan duration or term refers to the total timespan of the loan to be paid. So, it decides how much time you have left to repay the loan. If your loan term is shorter, you can expect your mortgage rate to decrease.
However, you might have to pay overall higher monthly payments. On the other hand, the loan term and the interest for the specific loan type will impact how much you lower the mortgage rate you have to bear.
Loan Amount
The mortgage rate depends on the amount of loan drawn. You may have to face a higher mortgage rate if you have applied for a lump sum. Generally, a lender calculates the loan amount by checking the home price and closing costs.
However, the down payment money will be subtracted from the total cost. If you want a clearer picture of your mortgage rate, you can ask your lender to show an approximate value. A mortgage rate calculator will help you in this instance.
Interest Rate Type
For your information, mortgage loans offer 2 kinds of interest rates. They are Fixed and Adjustable. If your lender agrees to a fixed interest type, your mortgage interest will stay the same for the rest of the loan term.
However, adjustable interest rates are different from fixed ones. You will pay your monthly mortgage with adjustable rates for a specified initial period. After that, the interest rate will fluctuate depending on the current market trends for the remaining loan amount.
Location
Mortgage loans and their interest rates rely on the borrower’s location. So, you might notice a difference in the mortgage rate of interest from one state to another.
Is 3.25% a Good Mortgage Rate?
Currently, 3.25% is a very low mortgage rate. If your lender proposes a 3.25% mortgage rate for a loan term between 15 years and 30 years, you should go for it. 3.25% indicates that you have handled your credit score very well. However, the deserving mortgage rate should depend on your FICO mortgage credit score.
For instance, if your credit score is more than 760, you deserve a mortgage rate below 3. Specifically, borrowers with a credit score between 760 and 850 should get a 2.642% mortgage APR for a loan term of 30 years.
In addition, the credit score range of 660 to 679 can get a 3.255% mortgage rate for a loan term of 30 years. However, the mortgage rate of interest can be as high as 4.231% if you have a credit score within a range from 620 to 639. On a contrary note, the mortgage interest rate can vary based on the loan type, interest type, down payment, and other factors mentioned above.
How Can You Ensure a Low Mortgage Rate of Interest?
Usually, a lower interest rate is always beneficial for borrowers. Make sure that you follow the guidelines below before you apply for a mortgage loan:
- Work on your credit score and try to improve it
- Pay off your existing debts
- Save a big down payment
In addition, we have mentioned a handful of strategies that might enhance the chances of you getting a lower mortgage rate of interest. Here’s how you can secure it:
- Select the right mortgage type that suits your needs.
- Next, you have to compare all the available lenders’ options. Compare them side by side to pick the best deal for you.
- Inspect mortgage loan estimates very carefully. Pay attention to the total amount and the APR charged at least for the 5 upcoming years of the loan term.
- Now, get in touch with a suitable lender. Don’t forget to negotiate. Perhaps you can get much lower interest rates and fees.
- In addition, you can plan on purchasing discount points if you are comfortable enough to afford them.
In Conclusion…
What is a good mortgage rate? You can secure even a better mortgage rate on interest if you shop around multiple creditors or lenders. Compare numerous quotes when you are looking for a home loan. The slightest difference in the mortgage rate can make a big difference and save you many bucks.
