How to Get a Lower Mortgage Rate in 2023

These tips can save you hundreds of dollars on your monthly mortgage.

With interest rates rising, it's more important than ever to make sure your mortgage rate is as low as possible. The monthly payment for a $500,000 home is now $1,000 higher than the same loan a year ago, due to higher interest rates. Here are four tips that can help you get the lowest mortgage rate possible this year.

1. Pay down points

One way to get a lower rate is by paying points. A point is equal to 1% of the total loan amount and lowers your rate by 0.25%. The points are paid at closing and the more points you pay, the lower your interest rate. Of course, this means you have to have a sufficient amount of cash available to cover the cost of the points, but it could be worth it if you plan on staying in your home for at least five years or longer.

For example, let's say you have a 30-year fixed-rate mortgage with an interest rate of 6% on a $500,000 loan. With a buydown, one point is typically 1% of the loan amount. So paying an additional 2% upfront ($10,000) would reduce your interest rate to 5.5%. This means that instead of paying $3,300 per month for a $500,000 loan, you'd only be paying $3,100 per month. Over time, this could add up to significant savings on your total mortgage payments.

2. Get pre-approved

Getting pre-approved for a loan is not the same thing as getting pre-qualified. Pre-approval means that mortgage lenders have reviewed your financial information and credit score and given you the green light for a loan before you start house hunting. Having pre-approval gives you bargaining power when negotiating with potential sellers and can help guarantee that your offer will be accepted. Plus, lenders tend to offer better rates when they feel confident about a borrower's ability to repay the loan.

3. Get your finances in order

Before applying for a mortgage loan, take steps to make sure all of your finances are in order. This includes checking your credit reports (which are free from all three major credit bureaus) and making sure there aren't any errors that could hurt your credit score or cause issues when applying for a loan. Additionally, try to pay down any existing debt so lenders view you as an attractive borrower who will be able to repay their loan on time each month.

4. Raise your credit score

Your credit score plays an important role when it comes to determining what kind of mortgage rate you can qualify for. Work on raising your score by using credit responsibly (such as by paying bills on time and not exceeding 30% utilization), monitoring your reports regularly, and disputing errors if necessary. It may take some time but having a higher score can help ensure that you get the best possible rate on your mortgage loan.

Getting a lower mortgage rate isn't always easy, especially in today's market. But if you follow these tips, then you should be able to find yourself better rates this year. With these steps taken care of ahead of time, finding yourself an excellent mortgage deal should be much smoother sailing!