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The interest rate on a 30-year fixed-rate mortgage is 6.875% as of January 26, which is unchanged from yesterday. Additionally, the interest rate on a 15-year fixed-rate mortgage is 5.49%.
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 January 26, 2024. 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?
- What determines the mortgage rate?
- How to compare mortgage rates
- Pros and cons of mortgages
- How to qualify for a mortgage
- How to apply for a mortgage
- How to refinance a mortgage
- FAQ
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 debtconsolidation 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 tool to easily compare multiple lenders and see prequalified rates in just a few minutes.
Introduction
As an expert in personal finance and mortgages, I can provide you with valuable information on the concepts mentioned in the article you shared. I have extensive knowledge and experience in this field, which allows me to offer insights and guidance to help you make informed decisions about your finances.
Mortgage Rates: How They Work
Mortgage rates are the interest rates charged by lenders when you borrow money to purchase a home. These rates determine the cost of borrowing and can vary based on several factors, including your credit score, debt-to-income ratio, down payment, loan amount, and repayment term [[1]].
When you take out a mortgage, you'll receive an amortization schedule that outlines your payment schedule over the life of the loan. Initially, a larger portion of your payments goes towards interest, while the principal balance is gradually paid down. As you approach the end of the repayment term, more of your payments go towards the principal and less towards interest [[1]].
Mortgage interest rates can be either fixed or adjustable. With a fixed-rate mortgage, the interest rate remains consistent throughout the loan term. On the other hand, an adjustable-rate mortgage (ARM) has an interest rate that can fluctuate with the market [[1]].
It's important to note that a mortgage's interest rate is different from its annual percentage rate (APR). The APR includes both the interest rate and any other lender fees or charges [[1]].
Mortgage rates are subject to change and can fluctuate daily. Factors such as inflation, economic conditions, demand, and inventory can influence the current average mortgage rates [[1]].
Determining Mortgage Rates
Mortgage lenders determine interest rates on a case-by-case basis. They typically reserve the lowest rates for low-risk borrowers with higher credit scores, income levels, and down payment amounts. Other personal factors that may affect your mortgage rate include the location and price of the home, loan term, loan type (conventional or FHA), interest rate type (fixed or adjustable), loan-to-value ratio, debt-to-income ratio, and other economic indicators [[2]].
Indirect factors that can impact mortgage rates include current economic conditions, inflation rates, market conditions, housing construction supply and demand, consumer spending, stock market performance, 10-year Treasury yields, Federal Reserve policies, and the current employment rate [[2]].
Comparing Mortgage Rates
To ensure you get the best mortgage rate, it's important to compare lenders and loan offers. Here are some effective ways to compare mortgage rates:
-
Shop around for lenders: Compare multiple lenders to find the best rates and lowest fees. Even a slight difference in interest rates can save you thousands of dollars over the life of the loan [[3]].
-
Get several loan estimates: Request loan estimates from different lenders. These estimates provide personalized rates and fees based on your financial situation and the property's location. Review and compare these estimates to make an informed decision [[3]].
-
Get pre-approved for a mortgage: Pre-approval gives you a better idea of what you qualify for and at what interest rate. It involves completing an application and undergoing a credit check [[3]].
-
Consider a mortgage rate lock: A rate lock allows you to secure the current mortgage rate for a specific period, typically between 30 and 90 days. This protects you from rate fluctuations while you continue shopping for a home [[3]].
-
Choose between fixed and adjustable rates: Consider the pros and cons of fixed-rate and adjustable-rate mortgages. The interest rate type can affect your long-term costs, so carefully evaluate your options [[3]].
Using a mortgage calculator can also help you compare rates and estimate your monthly payments. However, keep in mind that certain fees like homeowners insurance or taxes may not be included in the calculations [[3]].
Pros and Cons of Mortgages
Taking out a mortgage has its benefits and drawbacks. Here are some key points to consider:
Pros:
- Predictable monthly payments with fixed-rate mortgages
- Potential for low interest rates with good credit and a high down payment
- Tax benefits, such as mortgage interest deductions
- Real estate as an asset that can build equity and be used for other purposes
- Opportunity to improve your credit score through on-time payments [[4]]
Cons:
- Expensive fees and interest charges over the life of the loan
- Long-term debt commitment with typical loan terms of 10, 15, 20, or 30 years
- Potential rate changes with adjustable-rate mortgages [[4]]
Qualifying for a Mortgage
Qualification requirements for mortgages vary by lender, but here are the typical steps involved:
-
Steady employment and income: Lenders require proof of income, which may include regular job income, alimony, military benefits, commissions, or Social Security payments. They may also require proof of at least two years of employment with your current company [[5]].
-
Review of assets: Lenders consider your assets, such as money in bank or investment accounts, when evaluating your loan application [[5]].
-
Debt-to-income ratio (DTI): Your DTI, which is the percentage of your gross monthly income that goes towards debts, is an important factor. A lower DTI improves your approval odds [[5]].
-
Credit score: Good credit is crucial for obtaining the best mortgage rates. Different loan types have varying credit score requirements. For example, an FHA loan typically requires a credit score of 580 or higher with a 3.5% down payment [[5]].
-
Property type: During the application process, you may need to specify whether the home is your primary residence. Lenders often view primary residences as less risky, which may result in more lenient requirements [[5]].
-
Loan type: Consider the various mortgage loan options available, such as conventional loans, VA loans, USDA loans, FHA loans, and jumbo loans. Choose the loan type that best suits your needs [[5]].
-
Upfront and closing costs: Depending on the loan type, you may need to make a down payment and pay closing costs. The exact amounts vary based on the loan type and lender [[5]].
Applying for a Mortgage
To apply for a mortgage, follow these basic steps:
-
Choose a lender: Compare lenders based on the types of loans they offer, average mortgage rates, repayment terms, and fees. Check if they provide down payment assistance programs or closing cost credits [[6]].
-
Get pre-approved: Complete the pre-approval process to increase your chances of securing a loan. Prepare identifying documents and provide documentation of your employment, income, assets, and debts [[6]].
-
Submit a formal application: Complete the lender's application process, either in person or online, and upload any required documents [[6]].
-
Wait for loan processing: The lender will review your application and make a decision. They may request additional information about your finances, assets, or liabilities. Provide the requested information promptly to avoid delays [[6]].
-
Complete the closing process: If approved, you'll receive a closing disclosure with loan details and closing costs. Review the disclosure, pay the down payment and closing costs, and sign the final loan documents. Some lenders offer online closing processes, while others require in-person meetings. If your application is not approved, consult with your lender to understand the reasons and explore potential solutions [[6]].
Refinancing a Mortgage
Refinancing allows you to replace your current mortgage with a new one. It can be beneficial if you want to lower your interest rate, change the rate type, shorten the repayment term, reduce monthly payments, remove private mortgage insurance (PMI), or access equity for home improvements or debt consolidation [[7]].
The refinancing process is similar to applying for an original loan. You'll need to choose the type of refinancing, compare lenders for the best rates, complete the application process, wait for the lender's review, provide supporting documentation if requested, complete a home appraisal, and proceed to closing by reviewing loan documents and paying any closing costs [[7]].
Frequently Asked Questions
- What is a rate lock? A rate lock allows you to secure your current mortgage rate for a specific period, ensuring you get the rate you want during the homebuying process [[8]].
- What are mortgage points? Mortgage points are prepaid interest that you can pay upfront, often as part of your closing costs, to lower your overall interest rate. This can reduce your APR and monthly payments [[8]].
- What are closing costs? Closing costs are fees paid by the buyer before obtaining a loan. They include attorney fees, home appraisal fees, origination fees, and application fees, among others [[8]].
I hope this information helps you understand the concepts mentioned in the article. If you have any further questions or need additional assistance, feel free to ask!
