Why It Doesn't Pay to Chase the Lowest Mortgage Rates

by Maurie Backman | Updated Feb. 23, 2022 - First published on June 2, 2021

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A realtor showing a smiling couple a new home.

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Here's why you shouldn't spin your wheels trying to time your mortgage application.

When a friend of mine was looking at buying a home last year, she had a hard time finding a place that would suit her family and budget. Given that housing inventory has been super low over the past year, that wasn't shocking. By the time she finally found the right home and got an offer accepted, mortgage rates had risen a little from the time she first started looking.

Naturally, she was upset, and she asked me if I thought she should wait to apply for a mortgage. My answer? Move forward and don't worry about a modest uptick in rates.

If you're in the market for a new home, you may be eager to score the lowest mortgage rate possible. But mortgage rates can fluctuate from day to day, so it could be the case that if you apply one week on a Tuesday, you'll get a lower or higher rate than what you'd get that Thursday. Here's why that shouldn't worry you -- and what you should focus on instead.

Rate fluctuations can be meaningless

It's true that the lower your interest rate on your mortgage, the less you'll pay your lender each month. But in reality, a slightly higher mortgage rate may not make much of a difference in the grand scheme of owning a home.

Say you sign a $200,000, 30-year fixed mortgage at 3.23%, and the next day, rates drop so that you would've been eligible for a loan at 3.13%. Sure, that's annoying. But at a rate of 3.23%, you're looking at a monthly payment of $868 for principal and interest on your loan, and a lifetime interest payment of $112,480. At the lower 3.13% rate, you're looking at a monthly payment of $858, and total interest of $108,705 over 30 years.

Now obviously you don't want to reach into your wallet every month, remove a $10 bill, and toss it into the trash. But if you happen to snag a slightly higher mortgage rate due to the timing of your application, don't sweat it. In our example, an extra $10 a month on a home shouldn't make or break your budget -- and if it does, it's a sign that you're spending too much on a home in the first place.

When we look at the difference in interest, we can draw the same conclusion. The difference between $112,480 and $108,705 is $3,775. Yes, that looks like a lot of money. But remember, you're paying that extra $3,775 over 30 years, so when you break it down that way, it's not that significant.

Rather than worry about snagging the lowest interest rate possible on a mortgage, focus on making yourself the most appealing candidate. That means:

The more attractive a loan candidate you are, the greater your chances of getting the lowest rates that are available at the time of your application. Or, to put it another way, making an effort to boost your credit score could mean that instead of being offered a rate of 3.73% on a 30-year loan, you're offered 3.23%. The difference there is $56 a month less on principal and interest and over $20,000 less in interest over the course of your repayment period.

Mortgage rates can change overnight, and there's nothing to do about it. Instead of letting that stress you out, focus on finding the right home and doing everything in your power to qualify for the lowest mortgage rate possible.

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