By refinancing now, some homeowners could save on interest and reduce the length of their existing loan.
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The news many American homeowners and homebuyers have been waiting for is starting to arrive.
Mortgage interest rates are coming down again, albeit not in a major way. Still, any drop is a welcome one, particularly after they hit the highest point since 2000 earlier in 2023. As of December 8, 2023, the average mortgage rate for a 30-year loan is 7.41% while the average 15-year refinance rate is 6.69%. While these pale in comparison to the rates buyers and owners could have secured just a few years ago, they’re still heading in the right direction. Just look at the beginning of November when the 30-year loan rate was 8.06% and the 15-year refi rate was 7.20% for confirmation.
Against this backdrop, many current owners may be wondering if now is the time to refinance their existing homes. While mortgage refinancing may not be for everyone, there are some major signs to look for that could indicate it’s the right time for you to act. Below, we’ll break down three big signs it’s time to refinance now.
Not sure what mortgage refinance rate you’d qualify for? Find out here now.
3 big signs it’s time to refinance your mortgage
Does a mortgage refinance make sense for you now? Here are three major signs it may be time to get started.
You can get a lower interest rate than what you already have
While a 6.69% refinance rate isn’t considered a bargain by many (particularly when they were under 2% just a few years ago), it could be lower than what you currently have. If you have an adjustable-rate mortgage (ARM) currently, for example, you could be paying more than that. So by refinancing, you’ll save money that otherwise would have been going to interest. That said, there are a few caveats to be aware of.
First, make sure that the new rate is at least one point lower than your existing one. Many experts don’t recommend making the switch if the difference isn’t at least that large. Secondly, you’ll want to make sure that you can afford a larger payment. By refinancing into a shorter term, your loan will become condensed and your payments will increase, even at a lower rate. So crunch the numbers before proceeding — or look at refinancing into a 30-year loan instead. Finally, be sure that you’re planning on staying in the home long enough to recoup the closing costs required to refinance. If you’re not, it doesn’t make sense to act, even if you could get some short-term relief.
Explore your mortgage refinancing options here to see if it’s right for you.
You want to get rid of the loan sooner
Let’s say you recently inherited a large sum of money or your job situation has changed dramatically. In these instances, and some others, you may want to pay down your existing debt quicker. And with mortgages being some of the biggest monthly payments Americans have, it makes sense to look to a refinance.
By refinancing to a shorter time frame, you’ll have larger payments to make now, but for a much shorter period than you would have if you kept your loan on the current pace. Plus, you’ll save significant sums of money that otherwise would have gone to the lender in the form of interest.
Your finances have changed
Your finances may have changed since you first took out your loan. If you received an adjustable-rate mortgage, for instance, you may have since seen your interest rate increase significantly. In this case, you may want to refinance to a lower, fixed rate instead.
It’s also possible that you put a down payment of less than 20% when purchasing your home, thus mandating a private mortgage insurance (PMI) payment to the lender. But if you’ve since accumulated that 20% in equity (and you probably have, since millions of homeowners now have hundreds of thousands of dollars worth of usable equity), then it may make sense to refinance and have the PMI dropped.
Only you will know which circumstances apply and which ones don’t. Take a closer look at your mortgage loan and paperwork and crunch the numbers to see. You may be surprised at what you could save by acting now.
The bottom line
While a mortgage refinance can make sense for many in a low-rate environment, it may not be as beneficial now, even if rates are dropping in a favorable direction. That said, it can make sense to act now if by refinancing you can get your rate lowered by one point (or more). It may also be helpful to refinance to a shorter term if your goal is to rid yourself of the loan as soon as possible. And if your finances have since changed — your ARM rate has gone up or you’re still paying PMI when you don’t need to — it may be a sign that a refinance is right for you. As with all personal financial decisions, be sure to crunch the numbers carefully and review your budget before acting. By doing so, you’ll know if a mortgage refinance really makes sense for you now, or if it just appears that way.
Learn more here now.
Matt Richardson
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
Freddie Mac said today that 92 percent of prime borrowers who held a 1-year conforming adjustable-rate mortgage went with a fixed-rate mortgage when they refinanced during the fourth quarter, up from 85 percent in the third quarter.
The mortgage financier also found that 89 percent of prime borrowers who originally had a conforming hybrid ARM refinanced into a conforming fixed-rate mortgage, up from 84 percent in the third quarter.
“The turmoil in the financial markets that started in August and continued through the fourth quarter led most mortgage lending institutions to tighten their underwriting standards and thus some ARM products were either no longer available or came with more restrictions,” said Amy Crews Cutts, deputy chief economist for Freddie Mac.
“However, even with the financial market problems in the fourth quarter, conforming mortgage rates on all four of the ARM and fixed-rate products tracked by Freddie Mac’s Primary Mortgage Market Survey® fell by roughly one-quarter of a percentage point. With 30-year fixed mortgage rates averaging 6.2 percent over the quarter, many conforming mortgage borrowers found this product very attractive.”
Freddie’s Refinance Product Transition Report also revealed that 83 percent of borrowers who originally had a 30-year fixed mortgage refinanced into another like product during the fourth quarter, up from 79 percent in the third quarter.
Borrowers likely opted for the traditional 30-year fixed loan program because mortgage rates were very similar to those tied to 15-year programs.
More than half of borrowers who originally held a 15-year fixed-rate loan switched to a 30-year when they refinanced, while only 7 percent of borrowers with 30-year fixed-rate loans chose a 15-year when it came time to refinance.
“The difference between 15-year and 30-year fixed mortgage rates is quite narrow at the moment. When these rates are within a half of a percentage point of one another we see borrowers are more inclined to choose the longer amortizing loan because of the large payment difference,” Cutts added.
Just three percent of borrowers with 1-year ARMs switched into a hybrid ARM product in the fourth quarter, down from 8 percent in the third quarter of 2007.
Many people want to buy a home but think it isn’t possible because they don’t have money to put toward a down payment. Traditionally, lenders require a 20% down payment toward your mortgage.
But a 20% down payment adds up to a lot of money. For example, if you plan to purchase a $150,000 home, you’d need to come up with a $30,000 down payment. Many people cannot afford this, but fortunately, the 20% rule is a lot less common than you might think.
Is a buying a house with no money down possible?
The National Association of Realtors (NAR) reports that 39% of non-owners believe they need a 20% down payment or more and 22% believe they need a 10% to 14% down payment.
But neither of these are true. Many mortgage lenders will let you buy a home by putting down as little as 3%. And some lenders will let you skip the down payment altogether.
NAR also found that 61% of first-time homebuyers made a down payment between zero and 6%. So, it’s safe to say that a 20% down payment isn’t the standard anymore. But unfortunately, many consumers choose not to pursue homeownership because they believe this down payment myth.
Weighing the Pros and Cons of No Down Payment Mortgages
Is there any reason to aim for 20% down when most home buyers buy with a down payment less than 20%? If you can afford it, yes, the 20% rule is still a wise choice.
The more money you put toward your mortgage, the less debt you’ll have to repay and the less your monthly payment will be. Plus, there are several drawbacks to putting down less than 20%:
Less favorable rates: If you pay less than 20%, lenders will probably see you as a risky investment. And they will take this into consideration when calculating your mortgage rates. In general, you can expect to pay a higher interest rate if you put down a smaller down payment.
Higher closing costs: Closing costs are based on the size of your mortgage. So, the smaller your down payment is, the higher your closing costs will be. However, you may be able to get around this if you live in a state where it’s typical for the seller to pay the closing costs.
Private mortgage insurance (PMI): Private mortgage insurance is a type of mortgage insurance designed for borrowers who make a down payment lower than 20%. It protects your mortgage lender in case you end up defaulting on your loan.
PMI can cost as much as 1% of your total monthly mortgage payment. So for a $150,000 mortgage, you’ll end up paying $150 per month.
However, this may not be that bad, especially if you have a less expensive mortgage. And once you reach 20% home equity, you can cancel your PMI and get rid of these extra payments.
Check Out Our Top Picks for 2023:
Best Mortgage Lenders
How to Buy a House With No Money Down
Fortunately, there are several lending programs that do not require a down payment. Here are five payment assistance programs that will help you buy a home with little to no down payment.
1. VA Loans
VA loans are a valuable option for eligible military veterans, active-duty service members, and certain surviving spouses. These government-backed loans offer several benefits, making homeownership more accessible and affordable through the use of a VA loan.
100% Financing and No Down Payment
One of the most significant advantages of VA loans is the 100% financing, meaning you won’t need to make a down payment when utilizing a VA loan. This can save borrowers a substantial amount of money upfront, making it easier to enter the housing market.
No Private Mortgage Insurance (PMI) Requirement
Unlike conventional loans that require PMI for down payments less than 20%, VA loans do not require PMI. This can save borrowers hundreds or even thousands of dollars per year in mortgage insurance premiums when using a VA loan.
VA Funding Fee
While VA loans offer numerous benefits, there is a one-time funding fee charged to help offset the costs of the program. The funding fee is 2.15% of the total loan amount for first-time users of VA loans and 3.3% for subsequent uses.
This fee can be financed into the VA loan, reducing the out-of-pocket expenses for the borrower. In some cases, borrowers may be exempt from the funding fee, such as those with service-connected disabilities.
Certificate of Eligibility
To apply for a VA loan, borrowers need to obtain a Certificate of Eligibility (COE) from the Department of Veterans Affairs. The COE verifies the borrower’s eligibility for the VA loan program based on their military service or, in some cases, the service of their spouse. The COE can be requested online through the Department of Veterans Affairs website, by mail, or through an approved lender.
Additional Benefits
VA loans also offer competitive interest rates, more lenient credit requirements, and flexible underwriting guidelines compared to conventional loans. Additionally, there are no prepayment penalties, allowing borrowers to pay off their VA loans early without incurring additional fees.
2. Navy Federal Credit Union
Navy Federal Credit Union’s loan program is similar to what the VA offers. It offers a zero down mortgage and no mortgage insurance. And Navy Federal’s funding fee is only 1.75%.
Navy Federal offers a 30-year loan and a 30-year jumbo loan. 30-year loans have a loan limit of $424,100 while jumbo loans are available up to $1 million. However, you will have to be a Navy Federal member to qualify.
3. USDA Loans
If you’re looking to move to a rural area, you might qualify for a USDA loan. The United States Department of Agriculture Housing Program was designed to aid rural development and is aimed at low-income families. USDA loans offer 100% financing with low interest rates.
Here are the eligibility requirements you must meet to qualify for a USDA loan:
When buying a home it must be within the USDA’s boundaries: Although this loan targets rural areas, some suburban areas may still qualify. You can look at this map on the U.S. Department of Agriculture’s website to see if your location falls within the USDA’s geographical boundaries.
Your household income can’t exceed a certain threshold: This applies to everyone living in the household, even if they won’t be listed on the mortgage. For instance, if you have a parent living with you who collects Social Security, this counts toward the gross income of all members of a household. The maximum household income varies by state and county so you can find out if you qualify here.
See also: Best Home Loans for Low-Income Borrowers
4. Lease-Option
A lease-option (also known as rent-to-own) allows you to rent a home with the option to buy it at a predetermined price after a certain period. A portion of your monthly rent may be applied toward the purchase price or down payment. This can be a solid option if you need more time to save for a down payment or improve your credit.
5. Seller Financing
In some cases, the seller may be willing to finance the property for you, allowing you to purchase the home without a traditional mortgage. This arrangement typically requires a contract outlining the terms of the loan, including the interest rate, payment schedule, and any potential penalties.
Seller financing can be a viable option if you have a strong relationship with the seller or if the seller is having difficulty selling the property.
6. Crowdfunding
Crowdfunding is a method where you raise money from multiple individuals, typically through online platforms. You can set up a campaign to raise funds for your down payment or even the entire purchase price. This method may work best if you have a strong network of friends, family, and supporters who are willing to contribute to your home-buying goal.
7. Shared Equity Agreements
Shared equity agreements involve partnering with an investor who provides a portion or all of the down payment in exchange for a percentage of ownership in the property. When the property is sold or refinanced, the investor receives a return on their investment based on the agreed-upon share of equity. This can be an attractive option if you can’t afford a down payment but are willing to share future appreciation in the home’s value.
8. Housing Assistance Programs
There are numerous local, state, and federal housing assistance programs that offer grants, low-interest loans, or other forms of financial support to help eligible individuals purchase a home with no money down. These programs often have specific requirements, such as income limits, property location, or first-time homebuyer status. Be sure to research and apply for any programs for which you might be eligible.
Low Down Payment Loans
If you’re unable to buy a house with no money down but can afford a small down payment, consider these low down payment options that can help make homeownership more accessible.
1. 97% LTV mortgages
97% LTV mortgages is a loan program that is offered to first-time homebuyers by Fannie Mae and Freddie Mac. They require a 3% minimum down payment and private mortgage insurance.
Here are the guidelines for the program:
You’ll need a credit score of at least 680
One of the borrowers must be a first-time homeowner
Manufactured housing isn’t permitted
Gifts, grants, and other funds may be used toward the down payment
2. Federal Housing Administration (FHA) Loans
The Federal Housing Administration (FHA) was established in 1934 to reduce the requirements to qualify for a mortgage. This government-backed mortgage program offers flexible requirements, making it an attractive option for first-time homebuyers.
Here are the guidelines you’ll need to meet to qualify for an FHA loan:
Credit Score Requirements
The minimum credit score required to qualify for an FHA loan is 500. The specific down payment requirements depend on your credit score:
If your credit score is between 500 and 579, you’ll need to make a 10% down payment.
If your credit score is 580 or higher, you’ll have to make a 3.5% down payment.
Seller Contributions
FHA loans allow sellers to contribute up to 6% of the closing costs. This can help reduce the upfront costs for the buyer and make it easier to afford the purchase.
Mortgage Insurance Requirements
Mortgage insurance is required for an FHA loan, protecting the lender in case the borrower defaults on the loan. However, once you build 20% equity in the home, you can refinance to a conventional loan to eliminate the mortgage insurance requirement.
Debt-to-Income Ratios
FHA loans accept high debt-to-income (DTI) ratios, allowing borrowers with significant existing debt to still qualify for a mortgage. The FHA typically requires a maximum DTI of 43%, but exceptions can be made for borrowers with compensating factors, such as substantial savings or a history of making large payments on time.
3. HomeReady Mortgage
The HomeReady mortgage is a Fannie Mae program designed for low-to-moderate-income borrowers. It requires a down payment as low as 3% and offers flexible underwriting guidelines, making it an attractive option for first-time homebuyers or those with limited credit history.
4. Home Possible Mortgage
Similar to the HomeReady mortgage, the Home Possible mortgage is a Freddie Mac program that allows for a down payment as low as 3%. It is designed to help low-to-moderate-income borrowers achieve homeownership and offers flexible underwriting guidelines.
5. State and Local Homebuyer Assistance Programs
Many state and local governments offer homebuyer and down payment assistance programs that provide grants or low-interest loans to help cover down payment and closing costs. These programs typically have income and property location requirements, so be sure to research and apply for any programs for which you might be eligible in your area.
Each of these low down payment mortgage options has its own set of eligibility requirements and potential benefits. Be sure to research and compare these options to determine which one best aligns with your financial situation and home-buying goals.
Preparing for Homeownership
Before jumping into the home buying process, it’s essential to prepare yourself financially and mentally. This section covers tips for improving credit scores, creating a budget, and managing debt to make the home buying process smoother.
Credit Score Improvement Tips
Improving your credit score involves checking your credit report for errors and disputing any inaccuracies. Ensure that you pay your bills on time and reduce outstanding debt as much as possible. Keep credit card balances low, avoid opening new credit accounts, and consider requesting a credit limit increase without increasing your spending.
Creating a Budget
Creating a budget requires tracking your income and expenses to understand your spending habits better. Categorize your expenses and set realistic limits for each category. Allocate funds for saving and investing, including a down payment and emergency fund, and regularly review and adjust your budget as needed.
Managing Debt
Managing your debt effectively involves prioritizing high-interest debt and paying more than the minimum payment. Consider debt consolidation or refinancing options to secure a lower interest rate. Avoid taking on new debt before applying for a mortgage and create a debt repayment plan that you can stick to.
Understanding the Total Cost of Homeownership
Understanding the total cost of homeownership means factoring in property taxes, insurance, maintenance, and utility costs. Estimate homeowners association (HOA) fees if applicable and consider the costs of furnishing and updating the home. Prepare for potential increases in expenses over time, such as property tax hikes.
How to Choose the Right Mortgage Option
With various mortgage options available, it’s crucial to select the one that suits your financial needs and long-term goals. This section discusses factors to consider when choosing a mortgage, such as loan term, interest rates, and mortgage insurance.
Fixed-Rate vs. Adjustable-Rate Mortgages
Fixed-rate mortgages have a consistent interest rate for the loan’s duration, providing stability and predictable monthly payments. In contrast, adjustable-rate mortgages (ARMs) have an initial fixed-rate period followed by periodic rate adjustments, which may result in lower initial payments but potential rate increases over time.
Mortgage Term: 15-Year vs. 30-Year
The mortgage term plays a crucial role in determining the overall cost of your mortgage. 15-year mortgages typically have lower interest rates and allow for faster equity buildup, but require higher monthly payments. 30-year mortgages offer lower monthly payments, but result in more interest paid over the loan’s lifetime.
Mortgage Insurance Considerations
PMI may be required for conventional loans with less than a 20% down payment. Loans backed by the federal government, such as FHA, VA, or USDA loans, may have different insurance requirements or fees.
Assessing Your Long-Term Goals
When choosing a mortgage option, consider how long you plan to live in the home and whether your financial situation or housing needs may change. Evaluate the potential for home value appreciation and the impact on your future financial goals.
Planning Your Next Steps
Assess Your Financial Situation
The amount of money you choose to put toward a down payment is a personal choice. If you feel ready for homeownership but know that a 20% down payment isn’t feasible for you, there are many options available to help you.
The best place to start is by looking at your monthly budget and seeing what you can realistically afford. Use a mortgage calculator to reverse engineer your goal and find your ideal home purchase. Consider factors like property taxes, insurance, and maintenance costs, as well as any debts you currently have.
Get Pre-Approved
Get pre-approved for a mortgage before you start house hunting. This will give you an idea of how much you can afford, and it will show sellers and real estate agents that you’re a serious buyer.
To get pre-approved, you’ll need to provide your lender with documentation such as pay stubs, bank statements, and tax returns. They’ll then assess your credit score and financial history to determine how much they’re willing to lend you.
Shop Around for the Best Mortgage
Shop around for the best mortgage rates and terms. Don’t just settle for the first lender you come across. Compare different lenders and loan programs to find the best fit for your financial situation. Look for competitive interest rates, low fees, and flexible repayment terms.
Work with a Knowledgeable Real Estate Agent
A good real estate agent can help you find a home that fits your needs and budget. They’ll also guide you through the home buying process, making it less stressful and ensuring you don’t make any costly mistakes.
Attend First-Time Homebuyer Classes
Consider attending first-time homebuyer classes or workshops. Many local organizations and government agencies offer educational resources for first-time homebuyers. These classes can help you understand the ins and outs of the home buying process and give you the knowledge you need to make informed decisions.
Save for Unexpected Expenses
Even if you’re able to buy a home with no money down, it’s a good idea to have some savings set aside for unexpected expenses. These might include moving costs, home repairs, or furnishing your new home.
Build an Emergency Fund
In addition to saving for unexpected expenses, it’s also important to have an emergency fund in place. This should be enough to cover three to six months’ worth of living expenses in case you lose your job or face another financial emergency.
Be Patient and Stay Disciplined
Home buying is a complex process, and it can take time to find the right home and secure financing. Stay focused on your goals, be disciplined with your spending, and remember that homeownership is a long-term investment.
Conclusion
Buying a home with no money down is possible, but it may not be the best choice for everyone. Consider your financial situation, your long-term goals, and the various mortgage options available to you before deciding on a zero down payment mortgage. With careful planning and preparation, you can make your dream of homeownership a reality, even if you don’t have a large down payment saved up.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The interest rate on a 30-year fixed-rate mortgage is 6.875% as of December 6, which is unchanged from yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 5.875%, which is 0.500 percentage points lower than yesterday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal.
Rates last updated on December 6, 2023. These rates are based on the assumptions shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online toolto easily compare multiple lenders and see prequalified rates in just a few minutes.
Mortgage rates moved higher for all types of loans compared to a week ago, according to data compiled by Bankrate. Rates for 30-year fixed, 15-year fixed, 5/1 ARMs and jumbo loans increased.
After surpassing 8 percent in late October, mortgage rates have somewhat retreated. One big driver: Inflation has cooled, which means the Federal Reserve might end its rate increases. The Fed last hiked its key interest rate in July, which increased borrowing costs on a variety of financial products, including mortgages.
The central bank decided to hold firm at its November meeting, indicating it expects rates to stay on the higher side for the foreseeable future.
“Expectations of slower economic growth, moderating inflation and no more Fed interest rate hikes have been a downward influence on mortgage rates,” says Greg McBride, CFA, chief financial analyst for Bankrate.
The slight decline in mortgage rates comes alongside appreciating home prices. Home values have now climbed for eight months in a row, according to the S&P CoreLogic Case-Shiller index for September 2023.
Rates last updated December 5, 2023.
These rates are Bankrate’s overnight average rates and are based on the assumptions indicated here. Actual rates displayed across the site may vary. This story has been reviewed by Suzanne De Vita. All rate data accurate as of Tuesday, December 5th, 2023 at 7:30 a.m.
30-year mortgage rate moves higher, +7.53%
The average rate for a 30-year fixed mortgage for today is 7.53 percent, up 753 basis points over the last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 7.83 percent.
At the current average rate, you’ll pay a combined $701.27 per month in principal and interest for every $100,000 you borrow. That’s an increase of $701.27 over what you would have paid last week.
The popular 30-year mortgage has a number of advantages:
Lower monthly payment: Compared to a shorter term, such as 15 years, the 30-year mortgage offers lower, more affordable payments spread over time.
Stability: With a 30-year fixed mortgage, you lock in a set principal and interest payment, making it easier to plan your housing expenses for the long term. Remember: Your monthly housing payment can still change if your homeowners insurance premiums and property taxes go up or, less likely, down.
Buying power: With lower payments, you might qualify for a larger loan amountor a more expensive home.
Flexibility: Lower monthly payments can free up some of your monthly budget for other goals, like building an emergency fund, contributing to retirement or college tuition, or saving for home repairs and maintenance.
Learn more: What is a fixed-rate mortgage and how does it work?
15-year mortgage rate moves up, +6.80%
The average 15-year fixed-mortgage rate is 6.80 percent, up 680 basis points over the last week.
Monthly payments on a 15-year fixed mortgage at that rate will cost around $888 per $100,000 borrowed. Yes, that payment is much bigger than it would be on a 30-year mortgage, but it comes with some big advantages: You’ll come out several thousand dollars ahead over the life of the loan in total interest paid and build equity much more rapidly.
5/1 adjustable rate mortgage rises, +6.78%
The average rate on a 5/1 ARM is 6.78 percent, ticking up 678 basis points over the last 7 days.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. In other words, the interest rate will change at regular intervals, unlike fixed-rate mortgages. These loan types are best for those who expect to sell or refinance before the first or second adjustment. Rates could be much higher when the loan first adjusts, and thereafter.
While borrowers shunned ARMs during the pandemic days of super-low rates, this type of loan has made a comeback as mortgage rates have risen.
Monthly payments on a 5/1 ARM at 6.78 percent would cost about $651 for each $100,000 borrowed over the initial five years, but could climb hundreds of dollars higher afterward, depending on the loan’s terms.
The average rate for a 30-year jumbo mortgage is 7.59 percent, up 759 basis points since the same time last week. Last month on the 5th, jumbo mortgages’ average rate was higher, at 7.82 percent.
At the current average rate, you’ll pay $705.39 per month in principal and interest for every $100,000 you borrow. That’s $705.39 higher compared with last week.
Mortgage refinance rates
Current 30 year mortgage refinance rate climbs, +7.63%
The average 30-year fixed-refinance rate is 7.63 percent, up 763 basis points compared with a week ago. A month ago, the average rate on a 30-year fixed refinance was higher, at 7.96 percent.
At the current average rate, you’ll pay $708.14 per month in principal and interest for every $100,000 you borrow. That’s an extra $708.14 compared with last week.
Where are mortgage rates heading?
Mortgage rates have done a 180 as of late, falling back under 8 percent. With inflation cooling and 10-year Treasury yields declining, the 30-year fixed mortgage could head into the 6 percent range by next year, said Lawrence Yun, chief economist of the National Association of Realtors, at the group’s conference in November.
“I believe we’ve already reached the peak in terms of interest rates,” said Yun.
The rates on 30-year mortgages mostly follow the 10-year Treasury, which shifts continuously as economic conditions dictate, while the cost of variable-rate home loans mirror the Fed’s moves. These broader factors influence overall rate movement. As a borrower, you could be quoted a higher or lower rate compared to the trend.
What today’s rates mean for your mortgage
While mortgage rates fluctuate considerably,, there is some consensus that we won’t see rates back at 3 percent for some time. If you’re shopping for a mortgage now, it might be wise to lock your rate when you find an affordable loan. If your house-hunt is taking longer than anticipated, revisit your budget so you’ll know exactly how much house you can afford at prevailing market rates.
You could save serious money on interest by getting at least three loan offers, according to Freddie Mac research. You don’t have to stick with your bank or credit union, either. There are many types of mortgage lenders, including online-only and local, smaller shops.
“All too often, some [homebuyers] take the path of least resistance when seeking a mortgage, in part because the process of buying a home can be stressful, complicated and time-consuming,” says Mark Hamrick, senior economic analyst for Bankrate. “But when we’re talking about the potential of saving a lot of money, seeking the best deal on a mortgage has an excellent return on investment. Why leave that money on the table when all it takes is a bit more effort to shop around for the best rate, or lowest cost, on a mortgage?”
More on current mortgage rates
Methodology
Bankrate displays two sets of rate averages that are produced from two surveys we conduct: one daily (“overnight averages”) and the other weekly (“Bankrate Monitor averages”).
The rates on this page represent our overnight averages. For these averages, APRs and rates are based on no existing relationship or automatic payments.
Learn more about Bankrate’s rate averages, editorial guidelines and how we make money.
Portions of this article were drafted using an in-house natural language generation platform. The article was reviewed, fact-checked and edited by our editorial staff.
Key takeaways
Conforming loans are mortgages that meet the criteria set by the Federal Housing Finance Agency (FHFA). They’re eligible to be purchased by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
These loans have set limits and guidelines for borrower credit profiles, down payments and property types.
The FHFA adjusts the conforming loan limits every November to account for changes in the housing market.
If you’re shopping for a mortgage, you may have heard the term “conforming loan” thrown around. But what does it mean, how does it work and why should you consider getting one? Here’s everything you need to know about conforming loans and how they can benefit you.
What is a conforming loan?
A conforming loan refers to a type of conventional mortgage that aligns with the criteria set by the FHFA. Meeting these established standards makes these loans eligible to be purchased by Fannie Mae and Freddie Mac. By buying mortgages, Fannie and Freddie reduce risk for lenders. This practice also frees up more money for lenders to use to fund additional mortgages. Because of this, most mortgage lenders offer conforming loans.
Within conforming loans, there’s the option for a fixed or an adjustable rate. Term lengths can also vary, with 15- and 30-year terms being the most popular.
How do conforming loans work?
After you take out a conforming loan from a lender, here’s what happens next:
After your loan closes, your lender submits your loan to either Freddie Mac or Fannie Mae for purchase. They examine your loan paperwork, request clarification on any necessary details and eventually buy the loan.
Freddie Mac and Fannie Mae package these loans together to create mortgage-backed securities (MBSs), which are then sold to investors. Investors rely on MBSs as a consistent source of income (provided by the mortgage holders’ monthly payments). MBSs are somewhat like mutual or exchange-traded funds: Each may contain a large number of loans, sometimes as many as 1,000.
This consistent stream of MBS results in the establishment of a secondary mortgage market, fostering a continuous demand for fresh mortgages.
Conforming loan limits and rules
A mortgage must abide by certain standards to be considered conforming and eligible for Fannie Mae and Freddie Mac to purchase. These requirements include:
Loan limit – 2023’s limits are $726,200 for a single-family home in most markets, but up to $1,089,300 in higher-cost areas. (In 2024, the limit jumps to $766,550 in most areas and $1,149,825 in high-cost regions.)
Borrower credit score – At least 620
Borrower debt ratios – Ideally, a debt-to-income (DTI) ratio of 36 percent or less, though it can go up to 50 percent with specific compensating factors
Down payment/home equity – At least 3 percent down for a purchase or 5 percent equity for a refinance. However, if you put down less than 20 percent or have less than that in equity, you’ll need to pay private mortgage insurance (PMI) and will have a higher interest rate.
Loan-to-value (LTV) ratio – As high as 97 percent, depending on the mortgage and the borrower
Learn more: Conforming loan limits in 2023
How the FHFA regulates conforming loans
The FHFA compares the increase or decrease in the average house price from October to October every year, as indicated by the Housing Price Index. It uses this percentage change as the basis to adjust loan limits. This method ensures that the loan limits reflect the current housing market and allows buyers continued access to conforming mortgages.
Pros and cons of conforming loans
Pros
Low down payment: For conforming loans, the minimum down payment is 3 percent. This is much lower than a non-conforming jumbo loan, which is usually 10 to 20 percent.
More readily available: Conforming loans are some of the most popular mortgage products available. That means you’ll have many different lenders to choose from. Plus, since the process is standardized, you may be able to close on your home quicker and easier with a conforming loan.
You can avoid mortgage insurance: If you put at least 20 percent down on a conventional conforming loan, you won’t need to pay for private mortgage insurance. Even if you don’t put 20 percent down, you can have PMI removed once you have 20 percent equity. The average cost of PMI is 0.46 percent to 1.5 percent of the loan amount per month, according to an analysis by the Urban Institute, so this cost can be significant.
Cons
Borrowing limits: The home you want to buy could exceed conforming loan limits, especially if you’re in a higher-priced market.
Higher credit score needed: You need a credit score of 620 or higher for a conventional conforming loan, whereas some government loans can be had for a score as low as 500.
Limits on debts: Your DTI ratio must meet conforming loan standards set by the FHFA. The maximum DTI ratio is typically 36 percent. Sometimes, that can stretch to 43 percent or even 50 percent if you have other “compensating factors,” such as a higher credit score.
Conforming vs. non-conforming loans
A conforming loan conforms to the FHFA’s standards pertaining to the borrower’s credit, down payment and loan size. Fannie Mae and Freddie Mac will only purchase conforming conventional loans. A non-conforming loan doesn’t conform to these standards, so Fannie and Freddie won’t buy it from the lender.
The fact that a loan is non-conforming doesn’t mean it’s bad, however. It simply means that it doesn’t meet the criteria for purchase by the government-sponsored enterprises. You may need a non-conforming jumbo loan, for example, to purchase a home that exceeds the conforming loan limit for that area.
Additionally, some mortgage lenders offer nonconforming loan options tailored to borrowers with credit challenges or sketchy histories — like a bankruptcy in their recent past. The lender has more leeway in approving applicants, since it doesn’t have to meet the federal standards.
Of course, it has more leeway in setting fees, terms and other conditions, too. Nonconforming loans often charge higher interest rates than conforming loans, or impose more fees.
Conforming vs. conventional loans
Both conforming loans and conventional loans refer to private (non-government) and commercial mortgage loans. And their meanings overlap.
But “conventional loan” is a broader category. A conforming loan is one that meets specific criteria set by the FHFA, including conforming loan limits. A conventional loan is any loan that isn’t guaranteed or insured by the government (FHA, VA and USDA loans). Conventional loans can be either conforming or non-conforming.
In short: All conforming loans are conventional loans, but not all conventional loans are conforming loans.
How to get the best conforming loan for you
There are several steps you can take to help you get the best conforming loan for your circumstances:
1. Check your credit report
As far in advance as possible, check your credit report and history at AnnualCreditReport.com. Check your reports carefully for out-of-date items and factual errors. Dispute any errors you spot, because even minor issues can result in a lower credit score.
2. Get your documents in order
Get your paperwork together so you’re prepared for the mortgage application process. Lenders can now get a lot of information directly from banks and the IRS, but it’s still a good idea to have documents like payroll stubs, bank statements, retirement accounts, W-2 forms and tax returns handy.
3. Compare loan rates
Take the time to compare mortgage offers from at least three different lenders. Consider your needs and preferences when creating a short list of lenders to work with. You might want to start with your bank (if it offers mortgages), or consider a credit union or online lender, for example. Beyond the general terms of the loan, look closely at each lender’s fees and points.
Different lenders have different financing products available. Also, the same sort of loan’s terms may vary, depending on your creditworthiness.
You can find conforming loan rates through Bankrate, which provides mortgage rates for both 30-year and 15-year loans daily. When comparing mortgage rates, consider the following:
If you think interest rates will rise in the coming month or so, you might choose to lock your rate to ensure the lowest rate possible.
Interest rates may differ depending on your credentials as a borrower. Beware of rates that seem too low to be true given your financial position. If you do encounter a low rate, it could be that its percentage will be offset by bigger upfront costs. Be sure to evaluate the complete cost of the loan (interest rate and fees) carefully, as indicated by its annual percentage rate (APR).
Remember that you can get either a fixed- or adjustable-rate mortgage. A fixed-rate mortgage generally ranges from 10 to 30 years, and the interest rate remains the same for the life of the loan. With an adjustable-rate mortgage, your interest rate stays fixed for an introductory period, usually for 3 to 10 years, and is typically lower than fixed-rate loans. After that period, the rate will fluctuate based on market factors.
4. Get preapproved
Once you find a lender you’re interested in working with, you can get preapproved for a loan. Preapproval can help expedite the financing process and uncover any issues related to your credit before they show up when you formally apply for a mortgage. Getting preapproved also helps demonstrate to a home seller that you’re a serious buyer.
5. Avoid excessive spending
Lenders will keep a close eye on your credit and spending right up until your mortgage closing date. Think of the time between when you apply for a loan and when you close as a “quiet” period, when you spend as little as possible. While your mortgage application is processing, don’t apply for any new credit, such as a credit card or personal loan, and avoid unneeded large purchases. This will help ensure the closing process goes smoothly and you receive the financing you’re expecting.
Conforming loans FAQ
Conforming loan limits are set annually by the FHFA to account for housing market changes. By adjusting their baseline loan limit, the FHFA allows average homebuyers to secure a conforming conventional mortgage despite rising housing costs.
For 2023, the FHFA raised the baseline conforming loan limit to $726,200. In higher-cost regions, the limit is even higher — up to $1,089,300. This adjustment is part of the FHFA’s initiatives to support accessibility to mortgages for average buyers. For 2024, those limits jump to $766,550 in most areas and to $1,149,825 in pricey regions.
Unfortunately, one of the immovable standards for conforming loans is the loan limit — you can only borrow so much and no more. One workaround is a piggyback loan, in which you get a smaller mortgage atop a larger one: Together, they add up to enough to finance the home.
A conforming loan can have a lower down payment as long as the borrower pays private mortgage insurance (PMI). By paying for PMI, you can get a conforming loan with as little as 3 percent down if you have a Conventional 97, Fannie Mae HomeReady or a Freddie Mac HomeOne or Home Possible mortgage.
To qualify you for a conforming loan, lenders evaluate your debt ratios. There are two debt ratio measures, sometimes expressed as 28/36: the front-end and back-end. The front-end ratio measures how much of your gross monthly income is allocated to your mortgage, including the monthly payment (principal and interest), property taxes, insurance and HOA fees (if applicable). Typically, lenders look for a front-end ratio of 28 percent or less. The back-end ratio, also called the debt-to-income (DTI) ratio, includes the front-end ratio plus other monthly debt obligations, such as an auto loan, student debt, personal loan and credit card payments. (To derive your DTI, use this handy calculator). For conforming loan consideration, the maximum back-end ratio is 36 percent. It’s possible to get a conforming loan with higher debt ratios, but lower is generally better for both borrower and lender.
Our goal here at Credible Operations, Inc., NMLS Number 1681276, referred to as “Credible” below, is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders who compensate us for our services, all opinions are our own.
The interest rate on a 30-year fixed-rate mortgage is 6.875% as of December 5, which is 0.250 percentage points higher than yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 6.375%, which is 0.500 percentage points higher than yesterday.
With mortgage rates changing daily, it’s a good idea to check today’s rate before applying for a loan. It’s also important to compare different lenders’ current interest rates, terms and fees to ensure you get the best deal.
Rates last updated on December 5, 2023. These rates are based on the assumptions shown here. Actual rates may vary. Credible, a personal finance marketplace, has 5,000 Trustpilot reviews with an average star rating of 4.7 (out of a possible 5.0).
How do mortgage rates work?
When you take out a mortgage loan to purchase a home, you’re borrowing money from a lender. In order for that lender to make a profit and reduce risk to itself, it will charge interest on the principal — that is, the amount you borrowed.
Expressed as a percentage, a mortgage interest rate is essentially the cost of borrowing money. It can vary based on several factors, such as your credit score, debt-to-income ratio (DTI), down payment, loan amount, and repayment term.
After getting a mortgage, you’ll typically receive an amortization schedule, which shows your payment schedule over the life of the loan. It also indicates how much of each payment goes toward the principal balance versus the interest.
Near the beginning of the loan term, you’ll spend more money on interest and less on the principal balance. As you approach the end of the repayment term, you’ll pay more toward the principal and less toward interest.
Your mortgage interest rate can be either fixed or adjustable. With a fixed-rate mortgage, the rate will be consistent for the duration of the loan. With an adjustable-rate mortgage (ARM), the interest rate can fluctuate with the market.
Keep in mind that a mortgage’s interest rate is not the same as its annual percentage rate (APR). This is because an APR includes both the interest rate and any other lender fees or charges.
Mortgage rates change frequently — sometimes on a daily basis. Inflation plays a significant role in these fluctuations. Interest rates tend to rise in periods of high inflation, whereas they tend to drop or remain roughly the same in times of low inflation. Other factors, like the economic climate, demand, and inventory can also impact the current average mortgage rates.
To find great mortgage rates, start by using Credible’s secured website, which can show you current mortgage rates from multiple lenders without affecting your credit score. You can also use Credible’s mortgage calculator to estimate your monthly mortgage payments.
What determines the mortgage rate?
Mortgage lenders typically determine the interest rate on a case-by-case basis. Generally, they reserve the lowest rates for low-risk borrowers — that is, those with a higher credit score, income, and down payment amount. Here are some other personal factors that may determine your mortgage rate:
Location of the home
Price of the home
Your credit score and credit history
Loan term
Loan type (e.g., conventional or FHA)
Interest rate type (fixed or adjustable)
Down payment amount
Loan-to-value (LTV) ratio
DTI
Other indirect factors that may determine the mortgage rate include:
Current economic conditions
Rate of inflation
Market conditions
Housing construction supply, demand, and costs
Consumer spending
Stock market
10-year Treasury yields
Federal Reserve policies
Current employment rate
How to compare mortgage rates
Along with certain economic and personal factors, the lender you choose can also affect your mortgage rate. Some lenders have higher average mortgage rates than others, regardless of your credit or financial situation. That’s why it’s important to compare lenders and loan offers.
Here are some of the best ways to compare mortgage rates and ensure you get the best one:
Shop around for lenders: Compare several lenders to find the best rates and lowest fees. Even if the rate is only lower by a few basis points, it could still save you thousands of dollars over the life of the loan.
Get several loan estimates: A loan estimate comes with a more personalized rate and fees based on factors like income, employment, and the property’s location. Review and compare loan estimates from several lenders.
Get pre-approved for a mortgage: Pre-approval doesn’t guarantee you’ll get a loan, but it can give you a better idea of what you qualify for and at what interest rate. You’ll need to complete an application and undergo a hard credit check.
Consider a mortgage rate lock: A mortgage rate lock lets you lock in the current mortgage rate for a certain amount of time — often between 30 and 90 days. During this time, you can continue shopping around for a home without worrying about the rate changing.
Choose between an adjustable- and fixed-rate mortgage: The interest rate type can affect how much you pay over time, so consider your options carefully.
One other way to compare mortgage rates is with a mortgage calculator. Use a calculator to determine your monthly payment amount and the total cost of the loan. Just remember, certain fees like homeowners insurance or taxes might not be included in the calculations.
Here’s a simple example of what a 15-year fixed-rate mortgage might look like versus a 30-year fixed-rate mortgage:
15-year fixed-rate
Loan amount: $300,000
Interest rate: 6.29%
Monthly payment: $2,579
Total interest charges: $164,186
Total loan amount: $464,186
30-year fixed-rate
Loan amount: $300,000
Interest rate: 6.89%
Monthly payment: $1,974
Total interest charges: $410,566
Total loan amount: $710,565
Pros and cons of mortgages
If you’re thinking about taking out a mortgage, here are some benefits to consider:
Predictable monthly payments: Fixed-rate mortgage loans come with a set interest rate that doesn’t change over the life of the loan. This means more consistent monthly payments.
Potentially low interest rates: With good credit and a high down payment, you could get a competitive interest rate. Adjustable-rate mortgages may also come with a lower initial interest rate than fixed-rate loans.
Tax benefits: Having a mortgage could make you eligible for certain tax benefits, such as a mortgage interest deduction.
Potential asset: Real estate is often considered an asset. As you pay down your loan, you can also build home equity, which you can use for other things like debt consolidation or home improvement projects.
Credit score boost: With on-time payments, you can build your credit score.
And here are some of the biggest downsides of getting a mortgage:
Expensive fees and interest: You could end up paying thousands of dollars in interest and other fees over the life of the loan. You will also be responsible for maintenance, property taxes, and homeowners insurance.
Long-term debt: Taking out a mortgage is a major financial commitment. Typical loan terms are 10, 15, 20, and 30 years.
Potential rate changes: If you get an adjustable rate, the interest rate could increase.
How to qualify for a mortgage
Requirements vary by lender, but here are the typical steps to qualify for a mortgage:
Have steady employment and income: You’ll need to provide proof of income when applying for a home loan. This may include money from your regular job, alimony, military benefits, commissions, or Social Security payments. You may also need to provide proof of at least two years’ worth of employment at your current company.
Review any assets: Lenders consider your assets when deciding whether to lend you money. Common assets include money in your bank account or investment accounts.
Know your DTI: Your DTI is the percentage of your gross monthly income that goes toward your monthly debts — like installment loans, lines of credit, or rent. The lower your DTI, the better your approval odds.
Check your credit score: To get the best mortgage rate possible, you’ll need to have good credit. However, each loan type has a different credit score requirement. For example, you’ll need a credit score of 580 or higher to qualify for an FHA loan with a 3.5% down payment.
Know the property type: During the loan application process, you may need to specify whether the home you want to buy is your primary residence. Lenders often view a primary residence as less risky, so they may have more lenient requirements than if you were to get a secondary or investment property.
Choose the loan type: Many types of mortgage loans exist, including conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Consider your options and pick the best one for your needs.
Prepare for upfront and closing costs: Depending on the loan type, you may need to make a down payment. The exact amount depends on the loan type and lender. A USDA loan, for example, has no minimum down payment requirement for eligible buyers. With a conventional loan, you’ll need to put down 20% to avoid private mortgage insurance (PMI). You may also be responsible for paying any closing costs when signing for the loan.
How to apply for a mortgage
Here are the basic steps to apply for a mortgage, and what you can typically expect during the process:
Choose a lender: Compare several lenders to see the types of loans they offer, their average mortgage rates, repayment terms, and fees. Also, check if they offer any down payment assistance programs or closing cost credits.
Get pre-approved: Complete the pre-approval process to boost your chances of getting your dream home. You’ll need identifying documents, as well as documents verifying your employment, income, assets, and debts.
Submit a formal application: Complete your chosen lender’s application process — either in person or online — and upload any required documents.
Wait for the lender to process your loan: It can take some time for the lender to review your application and make a decision. In some cases, they may request additional information about your finances, assets, or liabilities. Provide this information as soon as possible to prevent delays.
Complete the closing process: If approved for a loan, you’ll receive a closing disclosure with information about the loan and any closing costs. Review it, pay the down payment and closing costs, and sign the final loan documents. Some lenders have an online closing process, while others require you to go in person. If you are not approved, you can talk to your lender to get more information and determine how you can remedy any issues.
How to refinance a mortgage
Refinancing your mortgage lets you trade your current loan for a new one. It does not mean taking out a second loan. You will also still be responsible for making payments on the refinanced loan.
You might want to refinance your mortgage if you:
Want a lower interest rate or different rate type
Are looking for a shorter repayment term so you can pay off the loan sooner
Need a smaller monthly payment
Want to remove the PMI from your loan
Need to use the equity for things like home improvement or debt consolidation (cash-out refinancing)
The refinancing process is similar to the process you follow for the original loan. Here are the basic steps:
Choose the type of refinancing you want.
Compare lenders for the best rates.
Complete the application process.
Wait for the lender to review your application.
Provide supporting documentation (if requested).
Complete the home appraisal.
Proceed to closing, review the loan documents, and pay any closing costs.
FAQ
What is a rate lock?
Interest rates on mortgages fluctuate all the time, but a rate lock allows you to lock in your current rate for a set amount of time. This ensures you get the rate you want as you complete the homebuying process.
What are mortgage points?
Mortgage points are a type of prepaid interest that you can pay upfront — often as part of your closing costs — for a lower overall interest rate. This can lower your APR and monthly payments.
What are closing costs?
Closing costs are the fees you, as the buyer, need to pay before getting a loan. Common fees include attorney fees, home appraisal fees, origination fees, and application fees.
If you’re trying to find the right mortgage rate, consider using Credible. You can use Credible’s free online toolto easily compare multiple lenders and see prequalified rates in just a few minutes.
Homeowners usually refinance to save money. If you can reduce your interest rate by 1% or more, that could be enough incentive to refinance. Yet given elevated rates, you probably won’t be able to secure a significantly lower rate than your current one. That doesn’t mean a refi isn’t a good idea for other reasons, like changing your term length or home loan type.
Both 15-year fixed and 30-year fixed refinances saw their mean rates trail off this week. The average rate on 10-year fixed refinance also slumped.
Millions of homeowners refinanced when mortgage rates hit record lows at the start of the pandemic. However, in today’s high-rate environment, most refinance demand is for cash-out refinances to help consolidate debt or fund other major expenses, according to Matt Graham of Mortgage News Daily. For those considering a refinance, Graham recommends getting in touch with a loan originator, keeping an eye on daily rate changes and making a game plan to capitalize on the next big drop in rates.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Refinance rates for homeowners
Many homeowners are facing the same disadvantages as everyone else in the housing market right now: elevated mortgage rates, limited available inventory and expensive homes.
If you decide to refinance, make sure to compare rates, fees and the annual percentage rate — which reflects the total cost of borrowing — from different lenders to find the best deal. Here’s a table with the average refinance rates reported by lenders across the country. We track refinance rate trends using information collected by Bankrate:
Today’s refinance interest rates
Product
Rate
A week ago
Change
30-year fixed refi
7.69%
7.74%
-0.05
15-year fixed refi
6.95%
7.05%
-0.10
10-year fixed refi
6.97%
7.11%
-0.14
Rates as of Dec. 1, 2023.
Where refinance rates are headed
In early November, a dip in mortgage rates motivated some prospective buyers to come off the sidelines and apply for home loans. Refinance applications also picked up slightly over the last few weeks, but they still remain well below historical averages, according to the Mortgage Bankers Association. Experts predict that both purchasing and refinancing activity won’t come back into full swing for a while.
“High interest rates and house prices have dampened demand, particularly in the refinancing market, which is currently at a standstill,” said Carlos Garriga, senior vice president and research director at the St. Louis Federal Reserve.
Mortgage rates surged steadily throughout much of 2022 and 2023 as the Federal Reserve carried out aggressive interest rate hikes to slow inflation. With inflation now going down, the Fed has held off on further rate hikes to evaluate the impact on price growth and the labor market.
It’s widely expected the Fed will hold interest rates steady until mid-2024, which can help mortgage rates stabilize. Once the central bank begins to actually cut rates, there should be more sustained downward movement.
“It’s very difficult to forecast movements in the mortgage rate, but we expect significantly less rate volatility in the coming year relative to 2022,” said Matthew Walsh, housing economist for Moody’s Analytics.
Even if rates return to 7% — a considerable decline from recent peaks — it could still be hard for homeowners to find many compelling or profitable reasons to refinance, said Keith Gumbinger, vice president of the mortgage site HSH.com.
Instead of a traditional rate-and-term refinance, homeowners might instead opt for a cash-out refinance, which allows them to tap into their home equity with a lower interest rate than other types of borrowing, according to Logan Mohtashami, lead analyst at HousingWire. “This would make sense only if it benefits the homeowner with a lower total cost of living because credit card interest rates are so high,” said Mohtashami.
How to find personalized refinance rates
The rates advertised online often require specific conditions for eligibility. Your personal interest rate will be influenced by market conditions as well as your specific credit history, financial profile and application. Having a high credit score, a low credit utilization ratio and a history of consistent and on-time payments will generally help you get the best interest rates. To get the best refinance rates, make your application as strong as possible by getting your finances in order, using credit responsibly and monitoring your credit regularly. And don’t forget to speak with multiple lenders and shop around.
Refinancing can be a great move if you get a good rate or can pay off your loan sooner, but consider whether it’s the right choice for you at the moment.
30-year fixed-rate refinance
The average 30-year fixed refinance rate right now is 7.69%, a decrease of 5 basis points compared to one week ago. (A basis point is equivalent to 0.01%.) A 30-year fixed refinance will typically have lower monthly payments than a 15-year or 10-year refinance so it can be a good option if you’re having trouble making your monthly payments. However, a 30-year refinance loan will take you longer to pay off and will typically cost you more in interest over the long term.
15-year fixed-rate refinance
For 15-year fixed refinances, the average rate is currently at 6.95%, a decrease of 10 basis points compared to one week ago. Though a 15-year fixed refinance will most likely raise your monthly payment compared to a 30-year loan, you’ll save more money over time because you’re paying off your loan quicker. Also, 15-year refinance rates are typically lower than 30-year refinance rates, which will help you save more in the long run.
10-year fixed-rate refinance
The current average interest rate for a 10-year refinance is 6.97%, a decrease of 14 basis points compared to one week ago. A 10-year refinance typically has the lowest interest rate but the highest monthly payment of all refinance terms. A 10-year refinance can help you pay off your house much quicker and save on interest, but make sure you can afford the steeper monthly payment.
Is now a good time to refinance?
Generally, it’s a good idea to refinance if you can get a lower interest rate than your current interest rate, or if you need to change your loan term. When deciding whether to refinance, consider other factors, including how long you plan to stay in your current home, the length of your loan and the amount of your monthly payment. And don’t forget to factor in fees and closing costs, which can add up.
With mortgage refinance rates at current heights, the number of refinancing applicants has shrunk. If you bought your house when interest rates were lower than today, there is little financial benefit to refinancing your mortgage. However, homeowners can’t time the market. Regardless of where rates are headed, decide if refinancing makes sense based on your financial situation and goals.
A home equity loan may be more affordable than you think.
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Your home’s equity is the portion of your home that you own free and clear. For example, if your home is worth $400,000 and your mortgage balance is $225,000, you have $175,000 in home equity. That’s money you can tap into to help you pay off high interest debt, make home repairs or cover a wide range of other expenses.
A home equity loan is one of the best ways to access your home equity. These loans, also called second mortgages, typically come with fixed interest rates and payments. Moreover, rates on these loans are usually very competitive because the lender uses your home as collateral.
But it’s important to understand the costs before you tap into your home’s equity. After all, you’ll need to pay your home equity loan back over time.
Access your home’s equity with a home equity loan today.
How much do home equity loans cost per month
The monthly cost of a home equity loan depends on the total amount of the loan as well as the interest rate your lender charges you. The average interest rates on home equity loans in today’s market are as follows:
10-year fixed home equity loan: 9.09%
15-year fixed home equity loan: 9.12%
Considering these averages, here’s what you can expect to pay on a home equity loan based on your loan’s value and duration (data courtesy of the First National Bank of Omaha home equity loan payment calculator):
$25,000 10-year home equity loan: $318 per month
$25,000 15-year home equity loan: $255 per month
$50,000 10-year home equity loan: $636 per month
$50,000 15-year home equity loan: $511 per month
$100,000 10-year home equity loan: $1,272 per month
$100,000 15-year home equity loan: $1,021 per month
It’s important to keep in mind that interest rates and home equity loan amounts can vary. So, your monthly payment may be higher or lower than the payments quoted above.
Find out how affordable your home equity loan can be now.
How to cut the cost of your home equity loan
As mentioned above, the cost of a home equity loan varies depending on the amount of the loan and the interest rate the lender charges. Of course, when costs can vary, there’s typically an opportunity to save. Here are a few ways you can cut the cost of your home equity loan:
Compare your options
Financial institutions are free to charge whatever interest rate they’d like when they issue a loan — within reason, of course. As a result, interest rates are one of the primary ways financial institutions compete with each other for your business.
“As with any loan, borrowers should research the best loan for their unique financial situation,” says Austin Niemiec, chief revenue officer for Rocket Mortgage.
So, if you want the lowest interest rate possible, it’s important to compare your options. Don’t just apply for the first home equity loan you find. Instead, look into at least three options to find the lowest interest rate possible in your unique situation.
Opt for a longer loan term
“Looking for a longer term can help” you save money on payments, says Niemiec. “Opting for a 20-year loan instead of a 10-year loan can help keep monthly payments low.” It’s worth noting, though, that while a longer term may reduce your monthly cost, it will likely increase the overall interest you’ll pay over the life of the loan.
Improve your credit score
Chances are that your credit score will play a significant role in the interest you pay on your home equity loan. Those with a strong credit profile typically pay better rates than those with a poor one.
“Another way to save money is by working to increase your credit score before applying for the loan. A higher credit score can help you get a lower interest rate which can save a lot of money in the long term. Even a quarter of a percentage point can save thousands of dollars,” Niemiec says.
So, it may be advantageous for you to take steps to improve your credit score before you apply for a home equity loan. Some things to consider doing to improve your credit include:
Pay down your credit cards to improve your credit utilization and debt-to-income ratios.
Settle any past-due debts.
Make it a point to make all of your loan payments on time.
Consider purchasing discount points
When you purchase a home, you typically have the option to purchase discount points that reduce the overall interest on your mortgage. Some lenders also allow you to purchase discount points when you take out a home equity loan.
In most cases, discount points cost 1% of the total value of the loan and bring the interest on the loan down by 0.25%. Although the 1% up-front fee may seem relatively high, you could save a significant amount of money over the life of your loan by purchasing discount points if you plan on making minimum payments. However, discount points may not be worth it if you plan on paying your loan off early.
Don’t miss out on today’s best deals. Lock in your home equity rate now.
The bottom line
Home equity loans are relatively inexpensive, especially when compared to unsecured lending options like credit cards and personal loans. Moreover, there are a few things you can do to further reduce your cost of borrowing against your home. Tap into your home equity today to access the money you need.
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Joshua Rodriguez
Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, three dogs and 10 ducks.
When you’re shopping for a mortgage, you’ll likely see two of the most common repayment terms — 30 years and 15 years — no matter which lender you shop with. Each term has its benefits and drawbacks, and the better option depends on your unique situation. Here’s a look at the pros and cons of 15-year mortgages, how to qualify for one and what mortgage rates you might expect.
Pros and cons of a 15-year mortgage
A 15-year mortgage can be a great option if you want to save money on interest and can afford higher monthly payments. But before taking out a 15-year home loan, consider the pros and cons of choosing this term.
15-year fixed-rate mortgage vs. ARM
Home loans may come with a fixed rate or an adjustable rate. A fixed rate won’t change throughout the life of the loan, even if market rates rise or fall. That means your monthly principal-and-interest payments won’t change either, which can be helpful for budgeting purposes.
With an adjustable-rate mortgage (ARM), your interest rate is fixed rate for a certain number of years and then fluctuates at regular intervals. A 15-year ARM is less common, so you’ll likely see the adjustable-rate option when taking out a 30-year mortgage. The frequency at which your rate changes depends on the loan you choose, but it’s common to see 5/1, 7/1, 10/1, 5/6, 7/6 and 10/6 ARMs.
The top number indicates the fixed period, while the bottom number shows how often the rate can change. With a 5/1 ARM, for instance, your rate remains fixed for five years, then fluctuates once a year through the rest of the loan term. And with a 5/6 ARM, your rate will be fixed for five years and then will change every six months.
ARMs typically come with rate caps, so your rate can only increase by so many percentage points even if market rates skyrocket. In general, an ARM can make sense if you plan to stay in your home for a short time, or you’re willing to risk potentially higher rates for possible rate decreases in the future.
How to qualify for a 15-year mortgage
Lenders consider several factors when evaluating prospective borrowers. In general, you’ll need to meet the following criteria to qualify for a conventional mortgage loan.
Credit score: You’ll typically need a credit score of at least 620 when you apply for a conventional home loan, though a higher credit score might be necessary in some cases. Loans backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) often have looser qualifying criteria because they pose less risk for lenders.
DTI ratio: Your debt-to-income (DTI) ratio shows the amount of debt you carry relative to your monthly income. Most lenders prefer a DTI below 36%, though some will accept a DTI of up to 50%.
Down payment: Some lenders may allow for a down payment as low as 3% of the loan amount, but you may need a down payment as high as 20% in some cases. Requirements vary by lender and loan type.
Employment: Lenders often check two years’ worth of employment history when you apply for a mortgage.
Qualification requirements can vary with each lender and the loan you want to take out. Before you apply for a mortgage, you can research lenders and ask about their requirements to determine your approval odds. Consider doing a preapproval, which can help you check how much you can borrow.
Comparing current 15-year mortgage rates
Your mortgage is likely the largest loan you’ll ever take out, so it’s wise to compare rates before applying. Even a slightly lower rate could help you pay much less in interest costs over the life of your 15-year term.
For instance, if you’re approved for a $350,000 home loan with a 15-year term, a 7% interest rate and a 3% down payment, you’d pay $209,845 in interest over your loan term. But the same loan with a 6.75% rate would cost just $201,303 in interest.
While your rate depends on many factors (including location), here’s a look at current 15-year mortgage rates from some well-known lenders, as of November 2023.
How to find the best rate and lender
Finding the best mortgage lender and the lowest interest rate comes down to doing some prep work. Take the following steps to find the best deal when you get a home loan:
Check your finances. Pull your credit reports and look for any reporting errors that are dragging your credit score down. Also check your credit score, which will directly impact the rate you receive. The best rates are usually reserved for borrowers with excellent credit.
Research several lenders. Create a list of prospective lenders you may want to borrow from. These could be traditional banks, credit unions or online lenders.
Compare rates and terms. Lenders often list available mortgage rates and terms on their websites. Using a mortgage calculator, you can estimate your monthly payment based on the potential loan size, down payment and interest rate.
Get pre-qualified. Once you’ve narrowed your list of lenders, check whether they offer a pre-qualification tool on their websites. Pre-qualifying involves providing some basic personal and financial information to get insight into potential rates and loan amounts.
Apply for the loan. After you’ve found a lender and a home loan that works for you, you’ll need to formally apply for the mortgage. Expect to provide in-depth personal and financial information as part of the application process.
Frequently asked questions (FAQs)
As of November 22, 2023, the average interest rate for a 15-year mortgage is 7.06%. But rates vary by lender, so it’s important to shop around and compare loans.
While 15-year mortgage rates are currently high, they will likely decrease at some point. The National Association of Realtors predicts rates may decline through fall and winter of 2023 if the federal funds rate stabilizes.
Your interest rate is the percentage your bank charges you to borrow money. Your APR includes both the interest rate and the fees you’ll pay for your mortgage loan, such as broker fees and points. Both rates are expressed as a percentage, so you can use them to compare multiple loan options.
Whether a 15-year is better than a 30-year mortgage depends on your situation. A longer term comes with a lower payment, but you’ll pay more in interest costs over time.
“So when it comes to a 15-year mortgage, the question that most people need to answer is: ‘Am I comfortable with this higher monthly payment?’ and ‘Is paying the home off more quickly a priority for me versus using that monthly cash for other purposes?’” says Jon Bodan, a strategic financing adviser at Real Estate Bees.
“There’s no right or wrong answer here,” Bodan adds. “But if you have other savings and are contributing to your retirement, then doing a shorter-term mortgage can be another good way to build net worth and wealth.”
Interest rates on 15-year mortgages are often slightly lower compared to 30-year home loans. Because repayment terms are shorter with 15-year mortgages, lenders take on less risk. Thus, the rates borrowers receive for shorter-term mortgages tend to be lower.
