Recent Mortgage Rate Trends
Become familiar with common types of loans and their respective distinctions to take advantage of your financial situation. Below is a short list of common terms that are used among mortgage trends.
Below is a table displaying the recent average mortgage rate for various kinds of loans updated weekly.
Mortgage Historical and Current Rates
||30-Year Fixed Rate
||15-Year Fixed Rate
||30-Year FHA Rate
||30-Year Jumbo Rate
||5/1 ARM rates
* Rates last dated on. (05/17/2022)
- 30 year vs 15 year – As the name suggests, a 30-year loan term is designed to be paid off over 30 years while a 15-year term is structured to be paid in full after 15 years. Although a 15-year mortgage has lower interest rates than a 30-year mortgage, 15-year mortgages have higher monthly payments because the same principle is paid in a shorter time frame.
- APR – The annual percentage rate (APR) is a bottom-line rate that reflects the interest rate, mortgage insurance, closing costs, discount points, mortgage broker fees, and any other charges associated with the loan. Hence, APR is higher than the interest rates.
- ARM – Adjustable-rate mortgage (ARM) refers to a loan where the interest rates are subject to change. The interest rate normally adjusts in relation to an index interest rate; in turn, the monthly payments rise or decrease according to the loan’s index interest rate.
- Fixed-Rate Mortgage – A fixed-rate mortgage is repaid with a fixed interest rate. Unlike adjustable-rate mortgages, the interest rate is set from the start and does not change during the life of the loan. That doesn’t mean every repayment is the same; the amount paid towards principal and interest changes every month.
- 5/1 Adjustable Rate Mortgage – Also referred to as a 5-year ARM, this is a mortgage loan in which “5” refers to the number of years the interest rate will remain fixed. The “1” refers to how often the interest rate will change after the initial five-year period.
What Factors Determine a Mortgage Rate?
There are a few factors that contribute to the final mortgage rate. Many, if not all, respectable lenders will examine each of the following factors before agreeing to sign on the dotted line for a mortgage loan deal.
People with higher credit scores, for example, 720 and above, have access to favorable rates from almost any lender. Scores below 600 are perceived as risky by the lender and are likely to draw higher mortgage rate offers.
The larger the down payment upon signing, the less risk taken on by the lender. A down payment shows the lender the level of commitment an individual has in seeing the deal through to its end because the borrower has more to lose. Thus, the larger the down payment, the better the offered interest rate.
Type of Loan Chosen
Numerous types of mortgage loans exist such as FHA, conventional, VA, and USDA loans. The rates will differ based on the available loan types. Researching and talking to multiple lenders can help identify the best option and mortgage rate.
The payment duration also affects the mortgage rates. For instance, lower interest rates are available for loans with shorter terms. The reason is that shorter-term loans indicate less risk for lenders, because borrowers may have better means to pay back the debt owed.
How to Get a Mortgage
When applying for a mortgage, it is important to prepare in the following ways:
- Know and Build Credit Score
- Choose the Appropriate Mortgage Type
- Compare Multiple Lenders
- Get Pre-Approved
- Prepare Documents and any Other Necessary Paperwork
After the necessary preparations, the following steps can be taken to finalize a mortgage:
- Fill out a Mortgage Application
- Evaluate the Loan Estimates
- Choose a Lender and Commit
- Loan Processing
- The Loan is Cleared to Close
There are numerous factors that one would probably want to consider before applying for a mortgage, such as their financial well-being, consequences of a potential default on a loan, and macroeconomic factors. Many people find it important to educate themselves on the step-by-step process of learning how to apply for a mortgage by continuing to research the preliminary obligations and expectations involved in mortgage loans so as to avoid becoming overwhelmed.
How to Qualify for Better Mortgage Rates
It is possible to qualify for better mortgage rates by adjusting and improving one’s financial behavior. Here are a few common things people do to get better mortgage interest rates.
Credit Score Improvement
Credit Scores are powerful indicators to lenders about one’s financial history and trustworthiness. Since they hold a lot of weight, improving one’s Credit Score is a strong starting point for securing a better mortgage rate. Learning how to build up one’s Credit Score can be very valuable for financial health and well being.
Increase the Down Payment Size
Typical mortgages require a 20% down payment. Getting access to better rates may involve offering a larger down payment. By increasing the down payment size, the size of the loan principal will decrease, usually translating into savings.
Lower The Debt-to-Income Ratio
The Debt-to-Income Ratio is something that lenders look at when receiving applications for a loan. By paying off debt and lowering the debt-to-income ratio before shopping for mortgages, the chances of finding better mortgage rates may increase.
How to Choose an Online Mortgage Lender
It is worthwhile to know the minimum qualifications set out by a given lender. Lenders set their standards based on borrowers’ credit scores, incomes, and more. One should become familiar with these qualifications to know what lenders would potentially be willing to offer. They are the factors that influence an applications’ success rate as well as the offered interest rate.
Mortgage repayment terms range from 15 to 30 years. Mortgages that have shorter terms have larger payment installations. Longer-term mortgages require smaller payments because payment installations are spread out over a longer period of time. Since less interest is charged over shorter periods of time, shorter-term mortgages normally end up costing less. While longer-term mortgages give the option to make smaller regular payments, they often end up costing more money in the long run because the repayment schedule lasts longer, allowing for interest to accumulate over time.
Customer service is also a worthwhile consideration for selecting a good mortgage. Poor customer service is one of the most common complaints one can find on neutral platforms like the Better Business Bureau. Platforms like the BBB may offer insights into other customers’ experiences with the lender in question.
Recommended Mortgage Loan Lenders & Markets
Traditional Lenders vs Online Mortgage Lenders
A primary benefit to choosing an online mortgage lender is convenience. There is no need to speak with an individual or step foot in a branch. Technology has simplified and enabled the availability of submitting all documentation electronically and completely online.
Additionally, many online lenders offer guidance throughout the process for those who may encounter issues along the way, just as a traditional lender would. The only difference is that it is done via online communication and phone calls.
With traditional lenders, the process may take longer due to the amount of paperwork involved. The online lending process is more streamlined and, in most cases, will simply require the paperwork to be completed from home.
Best of all, with online lending, shopping around and comparing rates from the comfort of a desk chair at home has become even easier. Online lenders ask for some basic information to build a profile and in turn, provide access to relevant qualifying rates, making it easy to compare mortgages side-by-side and get the best rates on a mortgage. Moving forward with an offer can continue online.
Mortgage Rate Industry Insights
According to data from Freddie Mac, mortgage interest rates have been steadily declining since 2018. But interest rates have started to rise in 2021, especially the common 30-year fixed-rate mortgage.
While mortgage rates are near an all-time low, there is no guarantee that rates won’t continue to rise. During the Covid pandemic, mortgage rates recorded historic lows. This was due to lockdowns and other pandemic measures that halted the economy. But the economy has recovered, and market analysts are predicting that the mortgage rates are set to spike in 2022.
In addition, the Federal Reserve is expected to raise rates three times in 2022, starting in March. Such moves are projected to increase interest rates, and there is a high level of uncertainty surrounding the extent of the rates rise.
How Does the Federal Reserve Affect Today’s Mortgage Rates?
Though the Federal Reserve does not set the mortgage rates, they are the institution that determines the federal funds rate, which in turn impacts short-term and adjustable interest rates. This means that the Federal Reserve influences the rate at which financial institutions, such as banks, lend money to one another. Thus, when the federal funds rate spikes, banks find it expensive to borrow funds from other financial institutions. The end result affects consumers that are charged higher interest rates on lines of credit, auto loans, and mortgages.
Tips for Shopping and Comparing Mortgage Rates
We recommend keeping several things in mind when comparing mortgage rates.
- Compare more lenders to find the best possible rates. Search for mortgages locally or from lenders in other states.
- Credit Scores have an effect on the rates offered. Consider investing time in improving financial habits with the goal of obtaining a stronger credit rating.
- Avoid Hard Credit Checks. In most cases, when applying for a mortgage, lenders will perform a “hard credit pull”. Meaning, credit scores may be negatively affected when multiple hard credit checks are made in a short period of time. Instead, inquire about your current credit score and ask lenders what rates they offer to borrowers with matching qualifications before applying. This will allow for rate shopping and comparison without causing credit score harm. It is possible to discover your current credit score for free via various financial institutions.
- Consider Mortgage Rate Locks – If a borrower negotiates with the lender to lock in the interest rate on a mortgage for a certain duration, it may create more stability and predictability and, therefore, a better agreement. The borrower may be protected from an unwanted increase in the interest rate. In turn, however, this would mean that a borrower would be locked into a less-favorable interest rate in the event of more favorable economic conditions that cause a decrease in interest rates.
- Mortgage Points are fees that a borrower pays to the lender for a reduction in the interest rates. They are also referred to as discount points, and they lower monthly mortgage payments. Each point purchased can translate into a reduction of up to 1 percent of the total loan amount. However, many individuals would consider the length of time they plan to own the home and the difficulty of recovering from the heavy purchases of said mortgage points.
There is plenty of information to cover and consider when choosing a mortgage lender. For that reason, we recommend using a mortgage lender guide as a reference for clear, concise, and relevant information.