What Is a Low Interest Rate for a Mortgage? Tips to Secure Lowest Loan Interest

A mortgage is a type of loan that you use to purchase a property like a home. Mortgage rates refer to interest rates on a mortgage loan. Your lender determines the mortgage rate. It can be the same, fixed for the duration of the mortgage term, or variable. You pay off this loan over a term, the most common being 30 years. Everyone getting this loan wonders, what is a low-interest rate for a mortgage? Indeed, you would obviously want to finance your new home purchase with a low-interest rate loan so it doesn’t ruin your budget. Keep reading to find out what a low or good mortgage rate looks like.

How Are Mortgage Rates Determined?

To determine what a low mortgage rate means, you must first know what goes into making these rates. Several factors influence the determination of these rates. Market factors are the largest driving forces for mortgage rates. The following market variables impact interest rates.

  1. Federal Reserve
  2. Bond market
  3. Secured Overnight Finance Rate
  4. Constant Maturity Treasury
  5. Condition of the economy
  6. Inflation

As you can see, it’s not possible for you to control these market factors. However, that doesn’t mean you have to settle yourself for high-interest rates. Your personal qualifying factors also affect the interest rates that lenders set. These include:

  1. Credit score – A high credit score encourages lenders to view you as a low-risk mortgage defaulter.
  2. Down payment – If you pay a larger portion of your home’s cost upfront, you are less likely to default on your mortgage. So, lenders will offer you low-interest rates on your loan.
  3. Loan type – Certain kinds of mortgage loans have more interest rates. So, to find what is a good mortgage rate for yourself, stay away from loans that have high-interest rates.
  4. Loan-to-value ratio – Lenders compare your down payment to the mortgage, and it becomes your loan-to-value ratio. This ratio increases if you put down less money on your home. It, in turn, makes lenders charge higher interest rates.
  5. Occupancy – Mortgage interest rates are very low on primary residences compared to a second home or investment property. It’s because you are more likely to make payments timely on your primary residence or permanent home.

What Are the General Interest Rates on Mortgage Loans?

Usually, the interest rates on these loans range from 8.5% to 11.80% per annum. You can avail of funding that’s up to 60% of the registered property’s worth. Since these rates depend on a lot of factors, they are very dynamic.

Mortgage interest rates change daily and weekly. Sometimes, the rate on a fixed mortgage can be down three basis points compared to last week. Other times, the national rate for a 30-year term refinance can fall 19 basis points compared to last week’s. So, there’s no specific answer to the question, what is a low-interest rate for a mortgage?

As a best practice, keep comparing the mortgage rates at present before applying for a loan.

How to Find Good Mortgage Interest Rates?

There are majorly three things that will help you secure the best mortgage rates. These include your credit score, income, and assets. Here are the steps to secure the lowest interest on the mortgage.

Boost your credit score

Do you know what constitutes the difference between getting a low-interest rate and being hit with expensive borrowing terms? It’s your high credit score, which is a crucial factor in determining risk. The lender uses it to decide your capacity to repay the debt. The higher your score, the more your chance of not defaulting. A score above 620 is fine.

Compute your mortgage refinancing savings

It is crucial to remove credit card balances and improve your score to get a lower interest rate. You must not carry a balance over 20 to 30 % of the available credit limit. Also, keep scanning your credit score for any discrepancies in the report.

Look for a shorter loan term.

The interest rate is lower in a 15-year fixed rate mortgage compared to a 30-year fixed rate mortgage. Besides, it’s also a good idea to consider an adjustable-rate mortgage. It’s introductory rate is lesser than what you will get on a fixed-rate mortgage.

Compare multiple lenders

You will never understand what is a good mortgage rate if you accept the first rate that a lender quotes. Do you know that borrowers save around $1435 with just one extra interest rate quote? So, talk to multiple lenders. Many of them base their interest rates on ideal borrowers.

It means unless you have a really great credit score and a massive down payment, you won’t get a loan with low-interest rates. So, check in with your credit union or bank as well and find a mortgage rate with the most favorable terms.

Final Thoughts

Now you can well answer what is a low interest rate for a mortgage. The interest rates are highly variable. Although you cannot control most factors that impact it, you can improve your personal financial situation. It means raising your credit score, paying a larger down payment, and selecting the right loan type.

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