Home buyers should move quickly if they want to lock in the best possible terms on their mortgage, as the winter months typically see lenders providing much better deals on their loans.
A new study by home finance startup Haus found that lenders typically offer discounts of up to 20 basis points in January compared to the period from June to October, when rates are at their highest. The study looked at seasonality, loan sizes, credit scores and other factors used to determine mortgage rates, analyzing loan data from Freddie Mac for more than 8.5 million mortgages that originated between 2018 and 2021.
After January, December and February are the next cheapest months to obtain a mortgage, the study found.
“While we can’t say for exact certainty why rates are lower in January than in the summer months, we can speculate that competition for customers matters,” Ralph McLaughlin, chief economist at Haus, told Market Watch. “Since home buying and refinancing is seasonal, there is less mortgage origination in winter months, so it could be that lenders must lower their rates to stay competitive and attract business.”
That said, the housing market is different this year as sales have been booming throughout winter. That’s partly because mortgage rates have been hovering at an all-time low for months now. In addition, some economists say that rates could increase in the coming months, though it depends on the overall trajectory of the economy.
The problem for many buyers is they don’t have a lot of control over the timing of their loans. The study notes the importance of having a good credit rating to obtain the best possible deal. Borrowers with a credit score of 800+ tend to get mortgages with rates of 42 basis points less than those borrowers whose credit scores are below 650.
Buyers can make savings by shopping around too. The study found a discrepancy of 75 basis points between the most and least expensive large mortgage lenders in the U.S.
“This means that, all else equal, the same borrower would get a 5% rate with the most expensive lender and a 4.25% rate with the least expensive lender,” McLaughlin said.