Overview
Mortgage rates aren’t set in stone. Your finances, credit score, lender, and even the timing of your loan application can all play a role in what rate you get, so shopping around for your loan is critical.
This is particularly true as home prices rise. With average home prices sitting well above $400,000, even small differences in rates can make a huge impact on your monthly payments, not to mention your long-term interest costs.
Want to make sure you’re doing all you can to snag a lower mortgage rate? This guide can help.
Prep Your Finances
Before you even begin rate shopping, you need to take a look at your finances. Lenders will consider your debts, credit score, income, and other financial factors when determining your interest rate, as well as how much you can borrow.
To get the best chance at a low rate, focus on:
Increasing your credit score: Credit scores reflect how well you manage debts and pay your bills. As a result, the higher your score, the lower your rate will usually be.
Reducing your debts: Paying down your debts reduces your debt-to-income ratio (DTI) — or how much of your monthly income goes toward debt payments. This often qualifies you for better interest rates, as it shows you have more income available to make your payments.
Increasing your income: Increasing your income is another way to reduce your DTI and get a better rate. Consider asking for a raise, taking on more hours at work, or picking up a side hustle or freelancing gig.
Saving up for a bigger down payment may also help you get a lower rate, as it means you need to borrow less from the lender.
Weigh Your Loan, Rate, and Term Options
Mortgage rates vary quite a bit depending on the loan type, interest rate type, and term length, and some options offer lower rates than others.
There are also trade-offs you’ll want to consider, though. Here’s what to think about:
Fixed vs. adjustable interest rates
Fixed-rate mortgages have the same rate and payment for the entire loan term, while adjustable-rate mortgages (ARMs) have a set rate for only a few years (typically three to 10), but the rate can then increase or decrease after that.
Usually, ARMs have lower rates than fixed-rate loans at the beginning, but once adjustments start, they can go much higher. For this reason, you’ll usually only want one if you plan to move or refinance before your rate can start adjusting.
Loan types
Government-backed mortgage loans like FHA, VA, and USDA mortgages often have lower interest rates than conventional loans, because the federal government assumes some of the risk.
There are trade-offs, though. With FHA loans, you’ll need to pay Mortgage Insurance Premiums upfront and, usually, for the life of the loan. VA and USDA loans, on the other hand, have strict eligibility requirements and aren’t available to most borrowers.
Please note: For VA loans, you need to be a veteran or military member, and for USDA loans, you must buy a home in certain rural parts of the country and fall below set income thresholds.
Term lengths
Shorter-term loans usually have better interest rates than longer-term ones. For example, the average 30-year loan rate was 6.27% October 2025. For 15-year loans, it was 5.52%.
The big difference here comes in payments. With a shorter-term loan, you will pay a much higher monthly payment (because the balance is spread out over fewer months). You’ll want to make sure you have enough cash to cover those payments if you go this route.
Compare Several Lenders
You might see average rates tossed around in headlines, but when it comes down to it, mortgage rates can vary a lot depending on what lender you’re talking to.
In fact, rates diverge so much that Freddie Mac estimates you can save over $1,200 annually just by getting four rate quotes.
To get a good range of rate quotes, you’ll need to fill out a loan application with at least four mortgage lenders. Make sure to:
Choose a variety of lender types, including online lenders, credit unions, designated mortgage companies, and banks you already do business with
Compare apples to apples, choosing the same loan type and term every time
Apply within the same 45-day period, so it counts as one single credit inquiry
Make sure to pay close attention to the “comparisons” section on Page 3 of the loan estimates you get from each lender, as these give you a good idea of the long-term costs of each quote. You should also look at the fees each lender is charging. These can vary quite a bit as well.
Don’t Be Afraid to Negotiate
Once you have quotes from a few lenders, you can use those to negotiate between companies. Take the loan estimate from one lender and ask another to beat the rate listed there. Depending on how much they want your business, they may be able to make you a better deal than what they originally offered.
If they can’t offer you a better rate, see if they can match another company’s rate and offer you concessions elsewhere, maybe with lower fees or a faster closing timeline.
Consider Points or Buydowns
You can also consider buying discount points, which let you pay an upfront fee in exchange for a slightly lower mortgage rate. You’ll need to ask each lender what they charge for points and how much it will reduce your rate, but typically, it’s somewhere around 1% of the loan amount for a 25-point drop in interest rate.
To see if points are worth it, calculate the breakeven point, or the point at which the savings from the rate reduction outweigh its upfront costs. Just take the total costs of the points and divide them by the monthly savings you’ll get from the lower rate. If you plan to be in the home that many months, then it could be worth it.
You can also look at buydowns. These are tools that some lenders offer, allowing you to have a lower mortgage rate for one, two, or even three years of the loan for a small fee. Then, the rate goes up to your originally quoted one after that. These can be worth it if you’re buying in a high-rate environment and rates are expected to drop in the near term.
Consider Using a Pro
If you really want to shop rates and loan programs, you can consider working with a mortgage broker. These professionals act like personal mortgage shoppers, and they can help you apply with and compare many lenders at once.
Consulting with a financial advisor or loan officer can also be helpful. Just make sure you know who they work for and whether they get any sort of kickbacks or incentives for recommending certain lenders or loan products.
by your friends at The Daily Navigator
