How to Get a Lower Mortgage Rate: 10 Tips

With the recent Fed rate cut, is now the perfect time to hunt for a lower mortgage rate and save big on your home loan? Whether you’re looking to buy a new home or refinance, locking in a better mortgage rate could help you save thousands over the life of your loan. But how do you snag that elusive lower rate? Keep reading to see how you can get personalized offers from our trusted partners through MoneyLion!

How to lower mortgage interest rate

If you want to reduce that dreaded interest rate on your mortgage, don’t worry, it’s not rocket science. By making some strategic financial moves, you can position yourself for a lower rate and more money in your pocket.

1. Improve your credit score

Your credit score is like your financial reputation. The higher it is, the better your chances of scoring a lower interest rate. Pay bills on time, reduce your credit card balances, and avoid opening new credit lines unless absolutely necessary. Lenders see a high credit score and think, “This person’s reliable!”—and then reward you with a better rate.

MoneyLion offers a free and convenient way to find offers from our trusted partners to help you improve your credit — such as credit monitoring, credit report disputes, and getting credit by paying bills. A good credit score can lead to lower interest rates and increased borrowing power on loans and credit cards.

2. Increase your down payment

More cash upfront means less risk for your lender. By putting down a larger down payment (typically 20% or more), you lower your loan-to-value (LTV) ratio, making lenders more likely to offer you a lower rate. It’s a win-win: you own more of your home from the start, and your monthly payments could be smaller.

3. Shop around

Don’t be shy—play the field when it comes to mortgage lenders. Different lenders offer different rates, so comparing offers can pay off. Check out traditional banks, online lenders, and mortgage brokers to see who offers the best deal. A little effort here can save you thousands over the life of your loan.

4. Consider a shorter loan term

Want to pay off your mortgage faster and save on interest? Opt for a shorter loan term. A 15-year mortgage typically offers lower interest rates compared to the standard 30-year loan. Yes, your monthly payment will be higher, but you’ll pay far less in interest overall. It’s a sprint, not a marathon.

5. Lock in your rate early

If mortgage rates are trending upward, locking in your rate ASAP could be a smart move. Once you’re ready to apply for a mortgage, ask your lender to lock in the current rate, protecting you from any potential rate hikes before closing. 

6. Consider a fixed-rate mortgage

Sure, an adjustable-rate mortgage (ARM) might tempt you with a lower initial rate, but beware—those rates can jump. With a fixed-rate mortgage, you lock in your rate for the entire term, giving you peace of mind and protection against rising rates.

Read more: Fixed-Rate vs. Adjustable-Rate Mortgage

7. Refinance your existing mortgage

If rates have dropped since you took out your current mortgage, refinancing could be your ticket to lower monthly payments. Refinancing allows you to replace your existing mortgage with a new one at a lower rate—just make sure the closing costs don’t wipe out your savings.

8. Make extra mortgage payments

Want to reduce your loan balance faster and maybe qualify for a better rate when refinancing? Try making extra payments toward your mortgage principal. This simple strategy helps you pay off your loan sooner and reduces the overall interest you owe.

9. Consider a government-backed loan

FHA, VA, and USDA loans often come with lower interest rates, especially for first-time homebuyers or those with lower credit scores. You may even be able to refinance into one of these loans if you qualify. If you’re a veteran or buying in a rural area, these loans can be especially appealing due to their flexible terms and lower rates.

10. Negotiate your mortgage rate

Feeling bold? Try negotiating your mortgage rate with your lender. While it’s not always possible, some lenders may lower their rate to win your business. It doesn’t hurt to ask, and a little negotiation could save you a ton in the long run.

Factors that can affect your mortgage rates

Several factors can influence the rate you get on your mortgage. Understanding these can help you better plan your approach and improve your chances of securing the best rate.

• Your credit score and credit history: A higher credit score shows lenders that you’re a low-risk borrower, leading to lower interest rates. Aim to improve your score by paying down debts and keeping your credit utilization below 30%.

• Your down payment size: Lenders love a big down payment. It reduces the loan-to-value ratio, showing that you’re financially stable and less likely to default on the loan. The bigger your down payment, the lower your interest rate is likely to be.

• The term length for your mortgage loan: A shorter loan term typically means lower interest rates. Lenders offer lower rates on 15-year mortgages because you’re paying them back faster, which reduces their risk.

• The federal funds rate: The Federal Reserve’s decisions on the federal funds rate directly affect mortgage rates. When the Fed cuts rates, mortgage rates tend to drop, making it a great time to shop around for a new loan or refinance.

• Inflation and the broader economy: When inflation rises, interest rates typically rise as well. In periods of economic uncertainty or high inflation, mortgage rates can climb, so it’s wise to keep an eye on economic trends.

The path to a lower mortgage rate

Finding a lower mortgage rate can save you thousands of dollars in interest over the life of your loan. Whether you’re improving your credit score, refinancing, or negotiating with lenders, these strategies can help you secure the best deal. 

FAQs

Can you negotiate your mortgage rate?

Yes, in some cases, you can negotiate a lower mortgage rate with your lender, especially if you have strong credit or a large down payment.

Will mortgage rates go down?

While it’s difficult to predict with certainty, mortgage rates may decrease if the Federal Reserve continues to cut rates or the economy weakens.

How can I get the lowest rate on my mortgage?

To get the lowest rate, improve your credit score, make a larger down payment, and shop around for offers from multiple lenders.