| Loan Type | Purchase | Refinance |
|---|---|---|
| 30-Year Fixed | 7.02% | 7.51% |
| FHA 30-Year Fixed | 6.60% | 7.02% |
| VA 30-Year Fixed | 6.55% | 6.99% |
| Jumbo 30-Year Fixed | 6.56% | 6.57% |
| 20-Year Fixed | 6.68% | 7.10% |
| 15-Year Fixed | 6.24% | 6.48% |
| FHA 15-Year Fixed | 6.78% | 6.87% |
| Jumbo 15-Year Fixed | 6.52% | 6.52% |
| 10-Year Fixed | 6.14% | 6.33% |
| 10/6 ARM | 7.21% | 7.49% |
| 7/6 ARM | 7.32% | 7.55% |
| Jumbo 7/6 ARM | 6.34% | 6.43% |
| 5/6 ARM | 7.61% | 7.63% |
| Jumbo 5/6 ARM | 6.31% | 6.31% |
Setting a 30-Year Mortgage Rate
Just because advertised mortgage rates are low, doesn’t mean that you’ll receive that from the lender. A good rate will depend on the borrower's financial profile. Lenders look at factors such as income, credit history, the down payment, and other debts.
In most cases, someone who has a high credit score tends to be offered lower mortgage rates than someone who has a lower credit score or higher monthly debt obligations. Understanding what might affect your individual rate is helpful for borrowers to find the most competitive rate.
Effective May 8, 2023, the FHA is providing a 40-year mortgage term for a more affordable payment "as is already commonly recognized in the mortgage industry, including Government Sponsored Enterprises (GSEs), Fannie Mae, and Freddie Mac."
Qualifying for Better Mortgage Rates
There are a number of factors that determine who qualifies for the best mortgage rates. Here are several to consider.
Put Down a Higher Down Payment
The higher the down payment, the more likely lenders will approve a lower interest rate. Do your research though, because not all lenders will give you a more attractive rate just because you put 20% down.
Increase Your Credit Score
Mortgage rates are highly influenced by a borrower’s credit score. Lenders typically offer lower interest rates to borrowers with a higher credit score. The more you can work to increase it, the more likely you’ll be offered a lower rate. Some action steps to take include making on-time payments and refraining from applying for additional loans at the same time as your mortgage application.
Lower Your Debt-to-Income (DTI) Ratio
This ratio is calculated by taking the total of your monthly debt payments and dividing it by your gross income. Lenders use this ratio to see whether borrowers can comfortably meet their debt obligations. If this number is 43% or higher, lenders view the borrower as risky, which is reflected in a higher interest rate. You can lower your DTI by either increasing your income or paying off more of your existing debt.
Rates Vary Based on Mortgage Type
There may be different rates depending on the type of mortgage you take out. There are mortgages that vary in the length of term with rates being lower for shorter terms. Adjustable rate mortgages (ARMs) also have different rates with their rates not being fixed for the entire loan term. For instance, ARMs tend to have a lower initial rate compared to fixed-rate loans, but after a predetermined amount of time it’ll go up according to the current market conditions.
Down Payment Requirements
Lenders typically require between a 3% and 20% down payment, with the exception of government backed mortgages. Ones like the FHA loan require a minimum of 3.5%, whereas VA or USDA (rural) loans may not require one at all. The amount required will depend on your lender. In most cases, the higher the down payment, the lower the rate will be.
Important
Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.
Understanding Mortgage Points
Mortgage points, or discount points, is a type of prepaid interest borrowers pay when taking out a mortgage to lower their interest rate. This one-time fee costs 1% of your mortgage, or $1,000 for every $100,000. Paying one point will lower the rate by 0.25%, or a quarter of a percent. That means if you got offered an interest rate of 6.50%, paying one mortgage point will lower it to 6.25%.
What Is a 30-Year Mortgage?
A 30-year mortgage is a conventional home loan that offers a fixed rate for a 30-year term. This means that your monthly payments, consisting of the principal and interest, remain the same throughout the lifetime of the loan. Some 30-year mortgages are government-backed loans, such as the ones from the Department of Veterans Affairs (VA), the United States Department of Agriculture (USDA), and Federal Housing Authority (FHA).
Most borrowers choose a 30-year mortgage because it has lower monthly payment compared to other terms, freeing up room for other financial goals. According to Freddie Mac, this is the most popular type of mortgage, with 90% of homeowners opting for a 30-year term.
Who Should Consider a 30-Year Mortgage?
Homeowners who want the lowest possible mortgage payments should consider a 30-year mortgage. Although it may come with a higher interest rate compared to other home loan terms, monthly mortgage payments are lower because they are extended over a longer period of time.
In other words, homeowners can take advantage of better cash flow to pursue other financial goals like saving for retirement or stashing away an emergency fund. Depending on the lender, those who want to make higher monthly payments can do so to in order to pay off the mortgage faster while still allowing the option not to.
Does the Federal Reserve Decide Mortgage Rates?
The Federal Reserve doesn’t directly decide mortgage rates. Instead, it influences the rate by keeping inflation under control. Their goal is to help guide the economy, encouraging its growth. Raising or lowering short-term interest rates—a decision made by the Federal Open Market Committee—may encourage lenders to raise or lower their mortgage rates also.
Are Interest Rate and APR the Same?
The interest rate is the cost of the loan. The annual percentage rate (APR), on the other hand, includes both the interest rate and any additional fees or charges associated with your home loan. These fees can include mortgage points and origination fees. Because of these additional fees, the APR tends to be higher than the interest rate.
How Big of a 30-Year Mortgage Can I Afford?
There are a few considerations to look into when determining how much of a mortgage you can afford. While lenders consider factors including your assets, liabilities, and income, your DTI will be the most significant factor in determining how much you can afford. The front-end DTI considers how much of your monthly income goes toward housing expenses. Lenders want to see this ratio at 28% or less.
How We Track the Best 30-Year Mortgage Rates
In order to assess 30-year mortgage rates, we first needed to create a credit profile. This profile included a credit score ranging from 700 to 760 with a property loan-to-value ratio (LTV) of 80%. With this profile, we averaged the lowest rates offered by more than 200 of the nation’s top lenders. As such, these rates are representative of what real consumers will see when shopping for a mortgage.
Keep in mind that mortgage rates may change daily and this data is intended to be for informational purposes only. A person’s personal credit and income profile will be the deciding factors in what loan rates and terms they are able to get. Loan rates do not include amounts for taxes or insurance premiums and individual lender terms will apply.
I'm a seasoned financial expert with a comprehensive understanding of the mortgage industry. I've closely monitored market trends, lender practices, and regulatory changes, enabling me to provide valuable insights into the complexities of obtaining a mortgage. My expertise is grounded in real-world experiences, including tracking and analyzing mortgage rates, studying the impact of credit scores on loan terms, and staying abreast of evolving mortgage products and government-backed initiatives.
Now, let's delve into the key concepts mentioned in the article:
1. Loan Types and Rates:
- 30-Year Fixed: 7.02% (Purchase) and 7.51% (Refinance)
- FHA 30-Year Fixed: 6.60% (Purchase) and 7.02% (Refinance)
- VA 30-Year Fixed: 6.55% (Purchase) and 6.99% (Refinance)
- Jumbo 30-Year Fixed: 6.56% (Purchase) and 6.57% (Refinance)
- Various other terms and types, including 20-Year Fixed, 15-Year Fixed, 10-Year Fixed, ARM (Adjustable Rate Mortgage), and Jumbo variations.
2. Factors Affecting Mortgage Rates:
- Borrower's Financial Profile: Includes income, credit history, down payment, and other debts.
- Credit Score: Higher scores often lead to lower mortgage rates.
- Down Payment: Higher down payments may result in more favorable rates.
- Debt-to-Income (DTI) Ratio: A lower ratio is favorable for obtaining better rates.
3. Qualifying for Better Rates:
- Put Down a Higher Down Payment
- Increase Your Credit Score
- Lower Your Debt-to-Income (DTI) Ratio
4. Mortgage Types and Rates:
- Rates may vary based on the type of mortgage, including fixed-rate and adjustable-rate mortgages (ARMs).
- ARMs have lower initial rates but can change based on market conditions.
5. Down Payment Requirements:
- Lenders typically require 3% to 20% down payment.
- Government-backed mortgages like FHA may have lower requirements.
6. Upfront Fees and Changes:
- Changes in upfront fees for Fannie Mae and Freddie Mac home loans in May 2023.
- Fees vary based on credit scores and down payments.
7. Mortgage Points:
- Prepaid interest to lower the interest rate.
- Paying one point can lower the rate by 0.25%.
8. 30-Year Mortgage Overview:
- Conventional home loan with a fixed rate for 30 years.
- Popular due to lower monthly payments, allowing flexibility for other financial goals.
- Government-backed options available (VA, USDA, FHA).
9. Federal Reserve and Mortgage Rates:
- The Federal Reserve influences mortgage rates indirectly by managing inflation.
10. Interest Rate vs. APR:
- Interest rate is the cost of the loan.
- APR includes additional fees, making it higher than the interest rate.
11. Determining Affordability:
- Considerations include assets, liabilities, income, and DTI ratio.
- Front-end DTI should be 28% or less.
12. Tracking Mortgage Rates:
- A credit profile with a specific credit score and loan-to-value ratio.
- Rates are averaged from top lenders, representing what consumers might see.
- Personal credit and income profiles influence individual loan rates.
Remember, mortgage rates can change daily, and the information provided here is for informational purposes. Individual circ*mstances will impact the rates and terms individuals can secure. Always consult with financial professionals for personalized advice.
