What actually moves your mortgage rate
Your mortgage rate depends on four things the lender measures: your credit score, how much you are borrowing compared to the home's value, the type of loan you choose, and current market conditions. You control three of these. The market you cannot control, but you can time when you lock in a rate.
Lenders use your credit score to decide how risky you are as a borrower. A score of 740 or higher typically gets the lowest rates most lenders offer. Between 700 and 739, you pay slightly more. Below 700, the gap widens. The difference between a 620 score and a 760 score can be half a percentage point or more on a 30-year loan—which means tens of thousands of dollars over the life of the mortgage.
The second factor is your down payment. If you put down 20 percent, you get better rates than if you put down 5 percent. Lenders see a larger down payment as lower risk. If you cannot reach 20 percent, you will pay for mortgage insurance, which raises your monthly payment and sometimes your rate.
The third factor is loan type. A 15-year fixed mortgage usually carries a lower rate than a 30-year fixed mortgage. An adjustable-rate mortgage (ARM) starts lower than a fixed rate but rises after a set period. A VA loan or FHA loan has its own rate structure, separate from conventional loans.
Key Takeaways
- Your credit score is the single biggest thing you control—improving it before you shop can save you thousands of dollars over the loan term.
- Lenders quote different rates to different borrowers on the same day, so you must get quotes from at least three lenders to see what you actually may have access to for.
- The difference between a 30-year and 15-year mortgage is not just the rate—it is the monthly payment, so compare the full picture, not the rate alone.
- Locking in a rate freezes it for a set number of days (usually 30 to 60), but you pay a fee to extend the lock if closing takes longer.
- Points—upfront fees you pay to lower your rate—only make sense if you plan to stay in the home long enough to recoup the cost.
How to get quotes from multiple lenders
Do not apply for a mortgage with the first lender you find. Rates vary between lenders even when market conditions are identical. A bank, a credit union, a mortgage broker, and an online lender may all quote you different rates on the same day for the same loan type.
Contact at least three lenders and ask for a Loan Estimate. This is a standardized form that shows the interest rate, the annual percentage rate (APR), the loan amount, the monthly payment, and all fees. The APR includes the interest rate plus lender fees, so it is a better number to compare than the rate alone. Ask each lender for the same loan type—for example, a 30-year fixed conventional mortgage with 20 percent down—so the quotes are actually comparable.
When you request a Loan Estimate, the lender will pull your credit report. Multiple pulls within 14 days count as one inquiry for credit scoring purposes, so you can shop around without damaging your score. After 14 days, each new pull is a separate inquiry and will lower your score slightly.
Compare the APR, the monthly payment, and the total fees. A lender with a slightly higher rate but lower fees might cost you less over time. A lender with a lower rate but higher points might cost more if you plan to sell in five years.
Improving your credit score before you shop
If your credit score is below 740, spending a few months improving it before you apply can lower your rate significantly. The most direct way is to pay down existing debt. Your credit utilization—the percentage of your available credit you are using—makes up about 30 percent of your score. If you have a credit card with a $5,000 limit and a $4,500 balance, paying it down to $1,500 will raise your score faster than almost anything else.
The second step is to make every payment on time for at least three months before you apply. Payment history is 35 percent of your score. A single late payment can drop your score 100 points. Three months of on-time payments will not erase a recent late payment, but it shows the lender a trend.
Do not open new credit accounts or apply for new loans while you are preparing to buy. Each application pulls your credit report and lowers your score. Do not close old credit cards either, even if you pay them off—closing them lowers your available credit and raises your utilization percentage.
If you have errors on your credit report, dispute them with the credit bureau. You can request a free report from each of the three bureaus—Equifax, Experian, and TransUnion—once per year at annualcreditreport.com. Errors are less common than people think, but they do happen, and removing one can raise your score by 50 to 100 points.
Understanding rate locks and points
Once you choose a lender and agree on a rate, you can lock it in. A rate lock freezes your interest rate for a set number of days—typically 30, 45, or 60 days. If rates rise before you close, your rate stays the same. If rates fall, you are stuck with the higher rate (unless your lock includes a float-down option, which costs extra).
If your closing is delayed and your lock expires, the lender will charge you a fee to extend it, usually between $250 and $500. Some lenders build the lock-in cost into the rate itself, so you do not see a separate fee. Ask your lender whether the lock is free or whether it costs extra to extend.
Points are upfront fees you pay to lower your interest rate. One point costs 1 percent of the loan amount. On a $300,000 loan, one point is $3,000. In exchange, you might lower your rate by 0.25 percent. Points only make financial sense if you plan to stay in the home long enough to recoup the cost through lower monthly payments. If you plan to sell or refinance in five years, paying points is usually a waste of money.
How market conditions affect what you can get
Mortgage rates move with the bond market, not the stock market. When the Federal Reserve raises interest rates, mortgage rates usually rise weeks or months later. When inflation falls, rates often fall. You cannot predict these movements, but you can watch them.
Freddie Mac publishes the Primary Mortgage Market Survey every Thursday, showing the average rate for a 30-year fixed mortgage that week. Bankrate, Mortgage News Daily, and the Mortgage Bankers Association publish daily rate tracking. If you see rates falling and you have not locked in yet, you might wait a few days. If rates are rising, locking in sooner protects you.
That said, trying to time the market is usually a mistake. The difference between locking in today and waiting three days is rarely more than 0.05 percent. The difference between a good lender and a bad one is often 0.5 percent or more. Focus on getting quotes from multiple lenders first, then decide on timing.
Comparing 15-year and 30-year mortgages
A 15-year mortgage has a lower interest rate than a 30-year mortgage—usually 0.3 to 0.5 percent lower. But the monthly payment is much higher because you are paying off the loan in half the time. On a $300,000 loan, a 30-year mortgage at 6.5 percent costs about $1,896 per month. A 15-year mortgage at 6.0 percent costs about $3,059 per month.
The 15-year loan saves you roughly $200,000 in interest over the life of the loan. But you need to be able to afford the higher monthly payment without stretching your budget. If the 15-year payment forces you to skip other financial goals—like building an emergency fund or saving for retirement—the 30-year mortgage is the better choice.
Some borrowers split the difference by taking a 30-year mortgage and paying extra toward principal each month. This gives you the flexibility to pay the minimum if money is tight, but still pay it off faster if you can afford to. Ask your lender whether your loan has a prepayment penalty before you do this.
When to refinance instead of buying
If you already have a mortgage and rates have fallen significantly, refinancing might lower your rate without moving. A refinance replaces your current mortgage with a new one at a new rate. You pay closing costs again, usually 2 to 5 percent of the loan amount.
Refinancing makes sense if the monthly savings cover the closing costs within a reasonable time. If you can save $200 per month and closing costs are $6,000, you break even in 30 months. If you plan to stay in the home longer than that, refinancing is worth it. If you might move or refinance again within three years, it probably is not.
You can refinance into a shorter loan term (from 30 years to 15 years, for example) or a longer one. Refinancing into a longer term lowers your monthly payment but costs you more interest overall. Refinancing into a shorter term raises your payment but saves you interest.
Frequently Asked Questions
Does shopping for rates hurt my credit score?
Multiple rate inquiries within 14 days count as a single inquiry for credit scoring, so you can shop with three or four lenders without damage. After 14 days, each new inquiry lowers your score by a few points. The impact is temporary and disappears after about three months.
What is the difference between APR and interest rate?
The interest rate is what you pay to borrow the money. The APR includes the interest rate plus lender fees, expressed as an annual percentage. APR is a better number to compare between lenders because it shows the true cost of borrowing.
Can I negotiate my mortgage rate?
Rates are set by the lender based on market conditions and your credit profile, not by negotiation. But you can negotiate fees. Some lenders will waive the origination fee or appraisal fee if you ask, especially if you are a strong borrower or bringing a large down payment.
What happens if rates drop after I lock in?
If your lock does not include a float-down option, you are stuck with the higher rate. A float-down option lets you take a lower rate if the market rate falls, but it costs extra—usually 0.125 to 0.25 percent of the loan amount. Whether it is worth buying depends on how much rates might fall and how long you plan to keep the loan.
Should I get pre-approved or pre-may have access to?
Pre-qualification is informal and does not require a credit pull. Pre-approval involves a credit pull and verification of income, so it is stronger proof that you can borrow. For shopping purposes, pre-approval from at least one lender shows sellers you are serious, but get Loan Estimates from multiple lenders before committing to any one.