The average 30-year fixed mortgage rate marked the largest day drop in over a year on Friday.
Mortgage rates are at their lowest level since October, but the average rate for a 30-year fixed-rate mortgage is still around 6.29%, according to Mortgage News Daily. This is a big leap from the level below 3% near the start of the pandemic.
But experts say there are ways to get even better terms with a mortgage.
Where mortgage fees are available
The Federal Reserve meets on September 17th, indicating an increase in interest rate cuts.
Lawrence Yun, chief economist at the National Association of Realtors, said the 15- and 30-year mortgage rates are fixed, but reducing the Fed’s target interest rate could provide some downward pressure.
But “even in reducing the expected rate, consumers should see 6% as a new normal until early next year,” Yun said.
“I’m hoping for 4% or 5% — I don’t think that’s going to happen,” he added.
Three ways to lower your mortgage rate
Regardless of where the mortgage interest rate is heading, potential buyers have some control over the interest rates they pay.
Below are some important money moves to ensure the best conditions on a mortgage.
1. Improve your credit score
Your creditworthiness ultimately determines the rate at which you can qualify. “If you have a high FICO score, you get a better rate,” said Scott Lindner, National Sales Director of Real Estate & Security Loans at TD Bank.
The most popular scoring model, the FICO score ranges from 300 to 850. “Good” scores are generally above 670, “very good” scores above 740, and those above 800 are considered “exceptions.”
For example, borrowers with a credit score of 780-850 can lock up a 30-year fixed mortgage rate of 6.19%, but jump to 6.39% with a credit score of 700-739. The $350,000 loan will cost you $13,000 for a higher fee, according to LendingTree data.
The best way to improve your credit score is to pay your bills on time each month, even if you pay the minimum due date.
As a general rule, it is also essential to keep the debt spinning below 30% of the available credits.
Alternatively, “Requiring a higher credit limit from credit card issuers can boost your score,” said Matt Schulz, chief credit analyst at Lendingtree. “This cap helps reduce utilization, but only if you don’t see it as an excuse to spend new available credits.”
Additionally, simply fixing errors in your credit report could potentially improve your credit score, Schulz said. “Even one late payment on a credit report can knock out 50 or more points from your credit score. So if it’s listed incorrectly in the report, it needs to be corrected.”
The length of your credit history is another important factor. A longer credit history can help you improve your score by giving lenders a better understanding of how you manage your debt.
1. We will support your down payment
Plus, if you spend more money on your home first, Lindner says you might be able to secure a better rate from your lender.
Borrowers who cut 20% “will definitely have a lower mortgage rate,” Yoon said.
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But for many Americans, it’s “unrealistic” to cut 20% to the home, according to Schultz.
In fact, according to the National Association of Realtors, the average down payment was 18% for all home buyers and just 9% for first-time home buyers in 2024.
“But if you can do that, your savings can be huge,” Schultz said. Not only will you save tens of thousands of dollars of interest during the life of your loan by lowering 20%, but you can save thousands of dollars a year by avoiding private mortgage insurance. “That’s a real big deal.”
3. Think beyond the 30-year fixed
Finally, “Don’t put yourself in a position where you think a 30-year mortgage is your only option,” Lindner said. In fact, more buyers are considering adjustable mortgages or weapons that offer lower initial fees than fixed-rate loans.
The arm can shave half a point from your rate, Lindner said. According to Mortgage News Daily, the 7/6 arm rate is currently 5.59%.
“The seven-year arm gives people the opportunity to take advantage of lower rates today,” Lindner said.
That’s why, according to Yun, weapons are becoming more popular. He said about 90% of consumers have been locked in for 30 years, but tapping your arm is a good way to get into the market.
Still, whether this is the right option depends on your time period, Yun added. In general, arms make the most sense for buyers looking at short timelines, especially “people in their late 20s or late 30s, people who may trade up.”
Otherwise, you risk ending up with interest rates that go on a much higher path than a fixed-rate loan.
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