5 Tricks to Getting the Lowest Mortgage Rate

by Maurie Backman | Published on Sept. 27, 2021

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Want to snag an affordable mortgage rate? Here's how.

You're probably aware that the lower your mortgage rate, the less expensive your monthly home loan payments will be. But snagging an affordable rate isn't just a matter of luck. Here are some specific things you can do to score a low interest rate on your mortgage.

1. Boost your credit score

The higher your credit score, the more likely mortgage lenders will be to offer you a low interest rate on a home loan. Your goal should be to get your credit score into the mid-700s or higher. If you're not there yet, start by paying all incoming bills on time, which will improve your payment history. Also, try paying off some existing credit card debt if that's possible. That will lower your credit utilization ratio, another big factor that goes into your score.

Finally, be sure to check your credit report for errors. Mistakes like debts in your name that you never actually racked up could be dragging your score down, and correcting them could boost that number quickly.

2. Get a 15-year loan

The shorter your mortgage term, the lower the rate you're likely to snag. Many people shy away from 15-year loans because they come with higher monthly payments. But if you're able to work a higher payment into your budget, you'll benefit from paying less interest not only on a monthly basis, but throughout the life of your loan.

3. Lock in your rate -- even if that means paying a fee

Mortgages can take weeks or months to close on, and during that time, you run the risk of the initial interest rate you're offered going up -- that is, unless you get a mortgage rate lock. With a rate lock, you secure a specific interest rate for a preset period of time that's usually anywhere from 15 to 60 days.

Some mortgage lenders charge a fee to lock in your rate. For a 60-day rate lock, you might pay up to 0.50% of your loan amount. But if you happen to apply for a mortgage at a time when rates have really plummeted, then paying a modest fee for a rate lock could make sense, just as it sometimes makes sense to pay mortgage points in exchange for a lower rate.

4. Shop around

The more lenders you seek out offers from in the course of getting a mortgage, the greater your chances of snagging a low interest rate on your loan. Once you have different offers, you'll be able to compare the rates you're eligible for and identify the best deal.

You may also be able to use different lenders' offers as a negotiation tool. For example, say one lender offers a lower interest rate than others but has higher closing costs, which are the fees you'll pay to finalize your loan. You may want to go with a lender with lower closing costs. In that case, you take your better interest rate offer back to a lender with more competitive closing costs and ask that lender to come down on its rate. If that lender wants your business, it may work with you.

5. Look at an ARM if the circumstances are right

With an adjustable-rate mortgage, or ARM, you lock in your interest rate for a preset period of time, after which it can climb. Clearly, there are risks in going that route -- one being that you'll end up seeing your rate rise. But the upside of getting an ARM is that you'll usually manage to snag a lower interest rate initially. And if you're buying a starter home or a home you don't plan to stay in for many years, then an adjustable-rate mortgage could make a lot of sense and result in interest-rate savings.

There is a lot to be gained by scoring a low interest rate on your home loan. Follow these tricks to make your mortgage as affordable as possible.

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