How to Shop For Mortgage Rates in 8 Steps

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Contributor, Benzinga
May 28, 2024

You might see lenders advertising low interest rates even when interest rates are historically high. Don't assume that the lender's advertised rates will be the rate you get. Those rates are for the ideal borrower with a high credit score, low debt-to-income ratio and enough savings for a downpayment of 20% or more. Instead, preparing your financing, researching and applying for multiple lenders can help you get the best rates. Read on to learn how to shop for mortgage rates to get more value and save over time. 

Understand How Mortgage Rates Work

Mortgage rates are the interest, expressed as an annual percentage, that you'll pay on the money or principal you receive for the mortgage. Current mortgage rates (as of May 2024) range from 6.60% to 7.79%, but lenders may offer you an even higher rate. 

There are also both fixed-rate and adjustable-rate mortgages. Fixed-rate mortgages are set throughout the loan's lifetime. You'll know exactly how much you pay. 

Variable-rate mortgages fluctuate with interest rates. If interest rates are high when you apply for a mortgage, variable rates may make sense, but you'll risk paying even higher interest rates in the future.

Benefits of Shopping for Mortgage Rates

Shopping for mortgage rates can feel like a full-time job, but it's worth it in terms of interest savings over the loan's lifetime. Here's why you should shop for mortgage rates.

Get a Better Deal

Lenders work in an open market, which means they can offer whatever rate they choose based on the information you provide. Shopping around for mortgage rates can lead to a better deal. Compare lenders’ interest rates, fees and other terms. If you're ambitious, don't hesitate to apply to 10-15 lenders within a couple of weeks to find the best available deal.  

Save Money

Securing a better mortgage rate can save you a lot of money in the long run. 

For example, on a $425,000 home where you pay 10% down and have an interest rate of 6.5%, you'd pay $488,351 in interest over the course of a 30-year fixed-rate mortgage. 

If the interest rate is 4.5%, you'll only pay $315,235. Even a 2% difference in interest rates can lead to more than $150,000 in savings over the loan's lifetime.

Improve Your Financial Well-Being

A lower mortgage rate can positively impact your overall financial situation. You'll have lower monthly payments, and the money saved on interest payments can be invested or saved for retirement, college funds or other long-term goals. Increased cash flow from a lower mortgage payment will give you more disposable income to build savings and investment goals. 

For example, the S&P 500 has an average annualized return of 9.4% over the last 50 years. If you invested $250 per month or $3,000 per year in an indexed fund tracking the S&P 500, assuming similar performance over the next 30 years, you'd have nearly a half-million dollars ($485,133) in savings. 

Shopping for Mortgage Rates: 8 Top Tips

Here's how to shop for mortgage rates and to get the lowest mortgage rate possible. 

1. Conduct Research on Available Mortgage Options

Start by reviewing the websites of financial institutions or banks to understand mortgage rates and options. Look up information about mortgage market trends to see where interest rates stand and what you can expect. Remember that stated rates usually won't be your final rate. 

Then, check with local real estate agents who may provide recommendations and advice. You can also get some free online mortgage quotes to give you a range of what you could expect for interest. 

2. Review Your Credit Score and Debt-to-Income Ratio

Credit score and debt-to-income ratio are significant factors in approving mortgage applications. A lower credit score or higher debt-to-income ratio may result in higher mortgage interest rates. You can check your credit score at AnnualCreditReport.com. Be sure to check that all information is accurate and up to date.

To calculate your debt-to-income ratio, add up all your monthly debt obligations, including student loans, car payments, medical debt, housing payments and credit card debt. Divide this number by your total income. If you have a partner, you can calculate the debt-to-income ratio individually or for your household together. 

3. Shop for Rates and Compare Offers

Now is the time to request mortgage quotes from different lenders. Request a mortgage quote from at least three to 10 lenders, then compare mortgage rates, fees, terms and conditions. Remember that if it seems too good to be true, it probably is. Be wary of interest rates that seem too good to be true, and check additional fees or terms. You can also check government-backed mortgage assistance programs.  

4. Understand the Different Types of Mortgage Rates

Adjustable-rate mortgages (ARMs) and fixed-rate mortgages (FRMs) are the two main types of mortgage rates. An ARM, or variable rate mortgage, may offer a lower interest rate than an FRM but may potentially increase after an agreed-upon period. For that reason, most borrowers prefer a fixed-rate mortgage so you know your mortgage payment obligation won't change over the loan's lifetime. 

5. Get Preapproved for a Mortgage

Before shopping for final mortgage rates, you can get preapproved with one or more lenders. For preapproval, you'll need the same documents as final mortgage approval, including proof of income, bank statements, tax returns, credit score and government-issued ID. To get preapproved, you'll want to pay off as much debt as possible to lower your debt-to-income ratio and work to improve your credit score. improve your credit score

6. Negotiate for Better Rates and Terms

Be willing to negotiate for better mortgage rates to get the most favorable terms and possibly seal a better deal. You can use a proposed mortgage and quotes from other lenders for leverage during negotiations. Remember, it can't hurt to ask!

7. Read and Understand the Fine Print

Before accepting any mortgage offers, understand all the terms and conditions. Some agreements may have hidden fees or extra charges that can add up over time. If you're uncomfortable reading legal documents, ask for the help of a trusted lawyer or real estate agent familiar with mortgage terms.

8. Seal the Deal and Lock In Your Rate

Once you're sure you've secured the best mortgage rate for your situation, inform the lender and request a lock-in. This locks in the current mortgage rate for a specified time to prevent interest rate fluctuations.

Compare Lenders With the Best Mortgage Rates

Explore the top lenders in the market offering competitive mortgage rates to help you make an informed decision on your home loan.

Get the Best Mortgage Rate Now

Getting the lowest mortgage rate comes down to factors you can control in a lending market that fluctuates. Before applying for a mortgage, work to lower debt, increase income and improve your credit score. You can also research lenders offering lower interest rates or low-fee mortgages to lock in better rates. The best way to shop for mortgage rates comes down to planning, research and timing to get the best interest opportunities and most favorable loan amounts.

Frequently Asked Questions

Q

What’s the best way to compare mortgage rates?

A

To compare mortgage rates, you should get quotes from at least three lenders and compare the interest rates, fees and closing costs. You can also use online mortgage rate comparison tools to find the best deals.

Q

How can I find the best mortgage rate?

A

To find the best mortgage rate, research online or contact lenders directly. Compare different rates and terms before making a decision. Ask for recommendations from friends and family, especially those who have secured mortgages recently.

Q

What factors affect my mortgage rate?

A

Your credit score, down payment, loan amount, loan term and type of loan can all affect your mortgage rate.

Q

Is it better to go with a fixed- or adjustable-rate mortgage?

A

The advantages of a fixed-rate versus an adjustable-rate mortgage depend on your preference and financial situation. A fixed rate may provide more stability, while an adjustable rate may have a lower initial rate.

Q

Can I negotiate my mortgage rate?

A

Yes, it is possible to negotiate your mortgage rate with the lender. Make sure to compare rates from multiple lenders to have leverage in the negotiation process.

Get Ready for Take Off

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About Alison Plaut

Alison Plaut is a personal finance and investing writer with a sustainable MBA, passionate about helping people learn more about wealth building and responsible debt for financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgages, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she regularly contributes to Benzinga.