However, rates are rising and rates at or below 4.5 percent are now considered very good. This is still well below the historical average of around 8 percent for a 30-year fixed-rate mortgage. While low average mortgage and refinance rates are a promising sign for a more affordable loan, remember that they are never a guarantee of the rate a lender will offer you. Mortgage rates vary by borrower, based on factors such as credit, type of loan, and down payment.
To get the best rate for you, you'll want to collect rates from several lenders. Anything equal to or less than 3% is an excellent mortgage rate. And the lower your mortgage rate, the more money you can save over the life of the loan. Not All Mortgage Loans Are the Same.
Knowing what type of loan is best for your situation prepares you to talk to lenders and get the best deal. In a growing economy where spending is increasing and more people are buying homes, this can increase demand for mortgages and rates. If you are considering an ARM, find out how your interest rate is determined; many are tied to a certain index, such as the rate for a year U. As before, even a single percentage point drop in interest rates can help you save significantly on a 15-year mortgage.
Exactly how much lower your interest rate will be and how much higher your monthly payment will be depends largely on the specific term of the loan and the type of interest rate you choose. Some loan products, such as USDA loans, offer lower rates than conventional mortgage options for eligible borrowers. Mortgage rates are determined by a complex interplay of macroeconomic and industry factors, such as the level and direction of the bond market, including 10-year Treasury yields; the current monetary policy of the Federal Reserve, especially with regard to mortgage financing backed by the government; and competition between lenders and on all types of loans. ARM rates are usually substantially lower than fixed rates, but keep in mind that you will only keep that rate low for a few years (usually 5, 7, or before you have the potential to increase).
To get the best mortgage interest rate for your situation, it's best to compare with several lenders. Existing homeowners also have the opportunity to refinance a current mortgage by applying for a new loan (and paying off the balance of the first mortgage loan) if they discover that interest rates have dropped and that they can obtain better financing terms. The interest rate on your mortgage affects the amount you'll pay each month, as well as the total interest costs you'll pay during the life of your loan. Mortgage interest rates generally move independently and in advance of the federal funds rate, or the amount banks pay to borrow.
There are several different types of mortgages available and they generally differ depending on the length of the loan in years and whether the interest rate is fixed or adjustable. Some homebuyers take advantage of the low introductory rate of an ARM if they know they will move or refinance before the initial rate expires. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their ratings, which may vary from advertised prepayment rates. Lenders tend to follow the general direction of the market, although they can also extend more favorable mortgage rates to certain homebuyers (based on their financial history and risk profile) at their discretion.