Mortgage Calculator

Getting a Better Mortgage Rate

The rate you are quoted is not a market number — it is a price set for you, based on how much risk the lender assigns to lending you a specific amount against a specific property. Most of the inputs are things you can influence, and some of them substantially.

What lenders actually price on

• Credit score. Usually the largest single factor. Pricing moves in tiers, so the practical question is not "is my score good?" but "how far am I from the next tier?" — a handful of points can be worth a meaningfully better rate.
• Down payment and loan-to-value. More equity means less lender risk. Reaching 20% is doubly valuable because it also generally removes PMI on a conventional loan, which lowers the payment twice over.
• Loan term. Shorter terms typically carry lower rates. A 15-year loan usually prices below a 30-year and costs dramatically less in total interest, at a higher monthly commitment.
• Loan type. Conventional, FHA, VA and USDA loans price differently and carry different insurance requirements. VA and USDA in particular can be very competitive if you qualify.
• Debt-to-income ratio. Lenders assess your total monthly obligations against gross income. Paying down a car loan or a card can move this more quickly than raising income.
• Property type and occupancy. A primary residence prices better than a second home, which prices better than an investment property. Condominiums sometimes carry adjustments.
• Points. You can pay up front to lower the rate. Whether this pays off depends entirely on how long you keep the loan — work out the break-even month and compare it honestly to how long you expect to stay.

The step most people skip

Compare multiple lenders. Consumer research has consistently found that a large share of borrowers obtain only one quote, and that the spread between lenders on the same borrower profile is wide enough to be worth thousands over the life of a loan. This is the highest-return hour available in the whole process, and it costs nothing.

Comparing offers properly

Use the Loan Estimate. Lenders are required to provide this standardised form, and its whole purpose is to make offers comparable page by page. Two things to hold in mind:

• APR versus rate. APR folds certain fees into a single annualised figure and is usually the better comparison between similar loans — though it assumes you hold the loan to term, which most people do not.
• A lower rate can cost more. A headline rate bought down with points and heavy origination fees can be worse than a slightly higher rate with lower costs. Compare the total, not the headline.

Rate locks

A lock fixes your rate for a defined period while your loan is processed, protecting you if rates rise and preventing you from benefiting if they fall. Confirm the length, what it costs to extend, and what happens if closing slips — delays are common, and an expired lock at the wrong moment is an expensive surprise.

What to do before applying

• Check your credit reports and dispute genuine errors, which takes time to resolve
• Avoid new credit accounts or large purchases during the process — a new car loan before closing can change what you qualify for
• Keep employment and income stable through closing
• Assemble documentation early: tax returns, W-2s or 1099s, pay stubs, bank statements
• Get pre-approved rather than pre-qualified — it carries more weight with sellers and surfaces problems while there is still time to fix them