If you’re feeling frustrated by the current state of mortgage rates, you’re not alone. While average rates on 30-year fixed mortgages are hovering just below 6.5%—a decrease from last year’s peak of 7.79% but still higher than rates from three years ago—there are proactive steps you can take to secure a better deal. According to a new report from the Realtor.com® economic research team, borrowers can potentially lower their mortgage rate by nearly 1.5 percentage points, or 150 basis points. On a $500,000 home with a 20% down payment, this could translate to a savings of $400 per month, or $4,800 annually. Here’s how you can make that happen.
1. Shop Around for the Best Mortgage Rates
One of the simplest and most effective ways to lower your mortgage rate is to shop around for quotes from multiple lenders. The report reveals that the difference between the highest and lowest rates offered can be as much as 86 basis points. This means that by comparing offers, you could potentially secure a significantly lower rate.
Interestingly, many homebuyers don’t take advantage of this opportunity. A May study from LendingTree found that 54% of homebuyers received only one offer for their most recent mortgage. Baby boomers were particularly less likely to compare offers, with only 28% doing so, compared to 62% of millennials. By actively seeking multiple quotes, you can ensure you get the best possible rate.
Pro Tip: Use tools like Realtor.com’s mortgage comparison tool to easily compare rates and fees from different lenders.
2. Improve Your Credit Score
Your credit score plays a crucial role in determining your mortgage rate. According to the report, improving your credit score to a “Very Good” rating (750 or above) can lower your mortgage rate by an average of 39 basis points.
Tips to Boost Your Credit Score:
- Pay down debt: Reduce outstanding credit card balances and loans.
- Check your credit report: Regularly review your report for any inaccuracies and dispute them if necessary.
- Limit new credit inquiries: Avoid opening new credit accounts before applying for a mortgage.
3. Increase Your Down Payment
Increasing your down payment can also result in a lower mortgage rate. The report indicates that putting down at least 20% of the purchase price, while maintaining a debt-to-income ratio of less than 30%, can reduce your rate by approximately 22.5 basis points.
How to Increase Your Down Payment:
- Save more: Set aside additional funds through disciplined savings plans.
- Use gifts or loans: Consider financial assistance from family or friends.
- Sell assets: Liquidate unused or non-essential assets to boost your down payment.
4. Refinance Your Mortgage
If you already have a mortgage, refinancing might be an effective way to secure a lower rate. The process involves taking out a new loan to replace your existing one, ideally with better terms. This can be particularly beneficial if rates have dropped since you took out your original mortgage.
Steps to Refinance:
- Compare lenders: Shop around to find the best refinancing rates and terms.
- Evaluate costs: Consider any fees associated with refinancing and weigh them against the potential savings.
- Lock in a rate: Once you find a favorable rate, lock it in to avoid fluctuations.
Conclusion
Lowering your mortgage rate can lead to significant savings over time. By taking proactive steps—such as shopping around for the best rates, improving your credit score, increasing your down payment, and considering refinancing—you can potentially lower your mortgage rate by up to 1.5 percentage points. With rates still above historical lows, now is an opportune time to explore these strategies and optimize your mortgage.
Ready to take action? Consult with a mortgage advisor to discuss your options and start implementing these strategies to secure a better rate and enjoy long-term savings. Here are two local advisors I recommend.
Michelle Kelly
Pioneer Mortgage Funding Inc.
Lisa Dawn
Buck Mortgage Solutions
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