If you’re looking to buy a home, you probably know that housing affordability is in the dumps. Record-high prices and elevated mortgage rates are serving a double whammy to prospective buyers everywhere.
A recent CNET survey found that half of US adults would realistically consider purchasing a home or refinancing an existing mortgage if rates were to drop to 4% or below. Yet most mortgage forecasts don’t even have average rates dipping below 6% in 2025.
But average mortgage rates are, well, averages. Depending on your financial situation, the rate you qualify for could be significantly lower than lenders advertise. A 1% difference in your mortgage rate can save you hundreds of dollars each month and tens of thousands of dollars over the course of your loan.
You can’t control the market forces that influence mortgage rates. However, optimizing your credit score and negotiating with multiple lenders can help you land a lower-than-average rate on your future home loan.
What’s considered a ‘good’ mortgage rate?
In a historical sense, a good mortgage rate is generally at or below the national average. The 30-year fixed mortgage rate since 1971 has averaged 7.72%, according to Freddie Mac. In the last year, average mortgage rates mostly fluctuated between 6% and 7%.
With that in mind, getting a rate in the mid to low 6% range is pretty good, according to Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage.
But affordability is relative to your overall financial situation. And because mortgage rates can change daily and even hourly, the definition of a “good” rate can change quickly.
“What matters is the rate you can get today,” said Colin Robertson, founder of The Truth About Mortgage. According to Robertson, the only way to know if you’re getting a good deal is to speak with a few different lenders and brokers, and then compare their quotes against the daily or weekly averages.
Read more: Still Chasing 2% Mortgage Rates? Here’s Why It’s Time to Let Them Go
How does a 1% difference impact your monthly mortgage payment?
Lowering your mortgage rate by even 1 percentage point can make a meaningful difference in your budget, translating into about 10% savings on a monthly mortgage payment.
For instance, let’s say you buy a home for $400,000 and make a down payment of 20% on a 30-year fixed-rate mortgage. The difference between a 7% rate and a 6% rate means a savings of $210 a month, which amounts to $75,748 saved over the life of the loan.
Here’s a quick look at how monthly mortgage payments compare for the same home with a 7%, 6% and 5% rate:
|
Mortgage rate |
Monthly payment |
Monthly savings |
30-year savings |
|
7% |
$2,128.97 |
– |
– |
|
6% |
$1,918.56 |
$210.41 |
$75,747.60 |
|
5% |
$1,717.83 |
$411.14 |
$148,010.40 |
Save money on your mortgage with these 7 tips
Improving your credit score, increasing your down payment, buying points and negotiating your rate can help you save money on your mortgage. Taking some (or all) of these steps can reduce your rate by 1% or even more.
1. Buy mortgage points
A mortgage point, also known as a mortgage discount point, is an upfront fee you can pay the lender in exchange for a lower interest rate on your home loan. Nearly half (45%) of homebuyers used this strategy when getting a mortgage in 2022, according to Zillow research.
Each point costs 1% of the purchase price of a home and usually knocks the rate down by 0.25%. On a $400,000 home, you’d pay $4,000 for one discount point. The lender may even allow you to buy four mortgage points to lower the rate from 7% to 6%, though you’d have to shell out $16,000 to get there.
To check whether this strategy is worthwhile, take the total cost of the points and compare it to the overall monthly savings. In this case, when you pay $16,000 to buy four points and save $210 per month, it would take you more than six years to reach your break-even point.
2. Improve your credit score
Lenders look at your credit score to decide whether you qualify for a home loan and what interest rate you receive. FICO credit scores range from 300 to 850, with 850 being the best score possible. Higher credit scores show you’ve managed debt responsibly in the past, so it lowers your risk to a lender. This can help you secure a lower interest rate.
“The best mortgage rates and products are typically reserved for those with a credit score of 740 or better,” DeFlorio said.
If your credit needs work, consider taking steps to raise your credit score before applying for a mortgage. It can help you save big, according to a 2024 Lending Tree study. When borrowers moved from the “fair” credit score range (580 to 669) to the “very good” range (740 to 799), they shaved 0.22% percentage points off their interest rate. That rate difference helped borrowers save $16,677 over the lifetime of a home loan.
Still, Robertson said that “it’s possible to get a good rate with a lower score, and simply shopping around could make up the difference.”
3. Increase your down payment
Your down payment is the amount of money you can contribute to your home purchase upfront. Each type of home loan comes with a minimum down payment, usually ranging from 0% to 5%, but a higher down payment can help lower your rate. That’s because the lender takes on less risk when you contribute more toward the loan.
Because a down payment lowers your rate and builds your home equity, some home loan experts recommend making a larger down payment, around 20%, instead of buying mortgage points. That’s because if you sell the home or refinance before reaching your break-even point, you lose money. But the amount you spent for your down payment becomes part of your equity.
4. Take out an adjustable-rate mortgage
An adjustable-rate mortgage, or ARM, is a home loan with a fixed rate for a set introductory period, such as five years. Once that period ends, the interest rate can go up or down in regular intervals for the remaining term.
The big appeal of ARMs is that the introductory interest rate is often lower than the rate on traditional mortgages. In November, the average 5/1 ARM rate was 6.19% compared to 6.79% for 30-year fixed-rate mortgages.
5. Negotiate your mortgage rate
When you’re applying for mortgage loans, you don’t have to go with the company that did your preapproval. In fact, research shows that getting rate quotes from multiple lenders and comparing offers can result in significant savings.
If you want to use this strategy, start by submitting a mortgage application with lenders that fit your criteria. Once you have a few loan estimates in hand, use the best one to negotiate with the lender you want to work with.
The loan officer may lower your rate, help you save on closing costs or offer other incentives to get you onboard. In a 2023 LendingTree survey, 39% of homebuyers negotiated the interest rate on their most recent home purchase. Out of that pool of buyers, 80% were able to get a better deal.
6. Opt for a shorter home loan term
Nearly 90% of homebuyers choose a 30-year fixed mortgage term because it offers the most flexibility and monthly payment affordability. Payments are lower because they’re stretched over a longer timeline, but you can always put more toward the principal here and there.
But when you take out a longer-term home loan, “you’re holding up the lender’s money, and there’s an opportunity cost for the funds to be invested elsewhere,” said Nicole Rueth, SVP of the Rueth Team Powered by Movement Mortgage.
Shorter loan terms, such as 10-year and 15-year mortgages and ARMs, have lower interest rates, so you can reduce your rate now.
Choosing a shorter repayment term could help you save money since you’ll be paying less in interest over the long term. But don’t make the homebuying mistake of choosing a shorter loan term just for the lower rate. Shorter loan terms mean you’ll have less time to repay the money you borrow, resulting in higher monthly payments, so it’s important to ensure they fit within your budget.
7. Get a temporary mortgage rate buydown
A temporary mortgage rate buydown involves paying a fee at closing to lower your interest rate for the first few years of your loan term. Because of the considerable upfront cost, this strategy only makes financial sense when someone else pays for that fee. Home builders, sellers and even some lenders may offer to cover this type of buydown to boost sales, especially when market rates are elevated.
For example, a lender may offer a “3-2-1” buydown, where the interest rate is slashed by 3 percentage points in the first year, 2 percentage points in the second year and 1 percentage point in the third. Starting in the fourth year, you pay the full rate for the rest of the loan term.
Buyers often choose a temporary buydown and plan to refinance later on. Your buydown funds are refundable, and you can use them toward closing costs when you refinance (if rates do drop).
Should you wait for more affordable mortgages?
Buying a home is a personal decision, so it should feel right for your situation and budget. As you shop for a home, consider multiple strategies to lower your rate and focus on factors within your control. A mortgage calculator can help you estimate what you’d pay each month.
“If you are comfortable with the monthly payments, you should not be fixated on a specific rate,” DeFlorio said. “Especially because if prices continue to go up, you may be paying a higher purchase price because you waited.”
Plus, the market is especially uncertain right now, as the US prepares for a new presidential administration. Trying to time the market could backfire.
“It’s too easy to get it wrong,” Robertson said. “The decision to buy a home should go well beyond a mortgage rate.”
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