Getting a Great Rate
Mortgage rates are at their lowest point in decades, but borrowers are still running uphill to reach the mortgage finish line. Here are some basic factors affecting the rate race.
- Quality credit. Mortgage lenders adjust their rates based on perceptions of risk, so unless you can show you're a low-risk borrower, you are unlikely to qualify for a rate that matches those seen in advertisements or news articles.
- Pay for points. The lowest rates usually are decreased by paying a fee called a point, or one percent of the loan amount. Points might make sense depending on your financial situation and how long you expect to stay in your home. If you plan to stay a long time, it will be wise to pay more points up front, so you can enjoy a lower interest rate over time.
- Type of property. Buying a duplex or multi-unit building will mean a higher rate. Same for condominiums, particularly newer ones. In general, lenders charge more if you are not planning to live in the home, as in a commercial property like an apartment building. This is because they are considered riskier loans.
- Loan length. A lot depends on how long you plan to live in a home. If you're likely to move in a few years, an adjustable-rate loan with a low interest rate fixed for 3 to 5 years might make sense.
- Speediness. Lenders typically agree to not change an offered interest rate for 60 days, but borrowers anticipating a quick closing may secure a small discount by accepting a 45 or 30 day rate guarantee.
The rates quoted by Freddie Mac and others are averages drawn from a variety of financial institutions, and lenders use varied approaches to set them.