How to Get a Lower Mortgage Interest Rate: 7 Helpful Tips How to Get a Lower Mortgage Interest Rate: 7 Helpful Tips
Securing a lower mortgage rate can add up to meaningful savings over the life of your loan. With the current rate environment, homebuyers and refinancers alike are looking for smart ways to reduce their borrowing costs. Whether you're buying your first home or refinancing an existing mortgage, these strategies can help you lock in a better deal.
1. Shop Around for the Best Rates
One of the most effective ways to get a lower mortgage rate is simply to compare offers from multiple lenders. Rates and fees can vary significantly between banks, credit unions, and online lenders. You may find that certain lenders specialize in different types of clientele or loan products, such as first-time homebuyers or VA loans. Similarly, you may find that you're more comfortable with a lender that focuses on purchases or refinances, depending on what kind of lending solution you're looking for.
In general, it can be tempting to take the first rate quote you receive from a lender just to keep the process moving forward, but it's almost always worth your while to shop around with different lenders to make sure you're getting the most competitive rate. There are plenty of online comparison tools available that can help you weigh loan terms from different lenders. Your real estate agent will likely have some invaluable advice about what lenders they've seen clients have success working with in the past, or who specialize in the type of loan you're looking for.
2. Improve Your Credit Score
Your credit score plays a major role in determining your mortgage rate. Lenders typically reserve their best rates for borrowers with scores of 740 or higher. The good news is, if your credit score isn't currently quite where you want it to be, there are several ways you can bump that score up. You should discuss such methods with your loan officer or a credit counselor.
Even a modest increase in your credit score may result in significant savings with your mortgage lender.
3. Make a Larger Down Payment
Putting more money down upfront reduces your loan-to-value (LTV) ratio, which makes you a less risky borrower in the eyes of lenders. Plus, a lower LTV often translates to a lower rate.
If you can afford to put down at least 20%, you’ll also avoid paying private mortgage insurance (PMI), which can add up to significant savings. Plus, a larger down payment means you’re borrowing less, which reduces the total interest you’ll pay over time.
4. Buy Mortgage Discount Points
Mortgage points are fees you pay upfront to your lender to obtain a lower interest rate and monthly payment. This strategy works best if you plan to stay in your home long enough to recoup the upfront cost through monthly savings.
Before buying points, calculate your breakeven point—the time it takes for the monthly savings to outweigh the initial expense. If you plan to move or refinance within a few years, buying points may not be worth it.
5. Use a Mortgage Buydown to Reduce Your Rate
mortgage buydown is a financing strategy that allows borrowers to temporarily lower their interest rate by paying money upfront at closing. This can be done by the buyer, seller, builder, or lender, depending on the deal structure.
Common buydown structures include:
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- 1-0 Buydown: 1% lower rate for the first year.
- 2-1 Buydown: 2% lower in year one, 1% lower in year two.
- 3-2-1 Buydown: 3% lower in year one, 2% in year two, 1% in year three
While buyers often pay for buydowns themselves, sellers and builders may offer them as incentives to close deals—especially in slower markets. Like discount points, buydowns make the most sense when you plan to stay in a home long enough to reach the breakeven point -- the time it takes for monthly savings to offset the upfront cost. They can also be beneficial when you expect your income to increase in the near future, making temporary savings valuable, or if you negotiate with a seller or builder to cover all or a portion of the cost without inflating the home's price.
6. Lock In Your Rate at the Right Time
Mortgage rates fluctuate daily based on market conditions, inflation, and Federal Reserve policy. Once you find a rate that fits your budget, consider locking it in to protect against future increases.
A rate lock guarantees your interest rate for a set period—usually 30 to 60 days—while your loan is processed. If rates drop after you lock, you may miss out on savings unless your lender offers a “float-down” option.
Timing is key. Locking in too early could mean paying a higher rate if rates fall, while waiting too long could expose you to rate hikes. Work closely with your lender to decide the best time to lock based on your closing timeline and market trends.
7. Refinance When Rates Drop
If you already own a home, refinancing can be a powerful tool to lower your mortgage rate. Refinancing replaces your current loan with a new one—ideally at a lower rate and better terms.
Refinancing is generally recommended when you can reduce your rate by at least 0.75% to 1%. For example, dropping from 7% to 6.25% could save hundreds per month on your mortgage payments. However, refinancing can come with closing costs, typically 2% to 6% of the loan amount, so it’s important to calculate your breakeven point.
Below are refinancing options and guidelines for several common home loan products:
- FHA Loans: May qualify for an FHA Streamline Refinance with minimal documentation.
- VA Loans: Eligible for a VA Interest Rate Reduction Refinance Loan (IRRRL).
- Conventional Loans: Require a credit score of 620+, steady income, and ideally 20% equity to avoid PMI.
Final Thoughts: Be Proactive and Strategic
In today’s market, getting the best mortgage rate isn’t about luck—it’s about preparation and strategy. Start by improving your financial profile, comparing lenders, and exploring all available options. Whether you're buying a home or refinancing, these seven strategies can help you secure a lower rate and save thousands over the life of your loan.
