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You’ve got rate questions, we’ve got answers

How is my mortgage rate determined?

Mortgage rates are a pretty complex business with many different factors influencing the rate you’re offered on a given day. Some of these factors are outside your control, like economic data and market forces. Other factors that lenders look at are based on your financial history and the details of your home purchase, including:

  • Your income and credit profile
  • Down payment amount and cash reserves
  • Any other assets
  • Property location and type
  • Loan type
  • Type of interest
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What’s the difference between fixed-rate and adjustable-rate?

A fixed-rate mortgage means your rate and mortgage payment will remain the same throughout the life of the loan (though your taxes and insurance can go up over time).

With an adjustable rate mortgage, you start out with a lower introductory rate for a period of time and after that period ends, your rate adjusts with the market periodically.

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How do I evaluate lenders and choose the right one?

If you’re looking to save money on your mortgage, it’s important (and easy!) to do some comparative rate shopping. Getting five quotes can knock an average of 0.166% off your rate, and it only takes a few minutes. Here’s how to do it:

Reach out to five prospective lenders and make sure to have the following information on hand: the home’s purchase price, your down payment amount, and your estimated credit score.

Pro tip: Make sure to request a closing cost breakdown so you can see what kind of lender fees each company charges. Lender fees are one of the biggest ways buyers are surprised by higher mortgage costs than they prepare for. Once you’ve got your lender quotes, it’s time to crunch some numbers and compare:

  • Rates
  • Lender-specific fees (examples: origination fee, application fee, credit report fee, broker fee, rate lock fee, points)
  • APR

These three pieces of information should give you good context for comparing lenders. Though keep in mind, rate isn’t the whole story. Your lender should meet your other needs too. Are they communicative and do they get back to you quickly? Do they have a strong presence in your local market? Perhaps they boast some of the fastest closing timelines in your area?

Don’t be afraid to ask questions and feel out different communication styles before landing on a favorite.

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How do I get the lowest rate? Is the lowest rate always best?

The lowest rates are typically reserved for the buyer with strong finances, a credit score of 740 or higher, and a down payment of at least 20%. Of course, most buyers don’t tick all those boxes.

To get the lowest rate possible, improve your credit score, make a larger down payment, and keep your debt-to-income ratio low. And don’t skip shopping around for rates!

But what if you’re nowhere near a 20% down payment, or your credit score isn’t quite where you’d like it to be? Talk to a lender. You might be more ready to buy a home than you think.

Sometimes waiting to improve your situation so you can score a lower rate isn’t worth it, especially when home prices are escalating faster than what most buyers can save. Plus, low rates aren’t guaranteed — market forces could send them climbing at any time.

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Should I look at APR or rate? What’s the difference?

APR is the total cost of financing your home. It’s your base mortgage rate plus any lender fees and finance charges on your loan. Because APR factors in lender fees, it’s typically a better, more all-inclusive indicator of your loan costs than looking at rate alone.

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Why does a 15-year fixed mortgage have a lower rate than a 30-year?

APR stands for annual percentage rate. With a 15-year loan, you’re only paying interest for 15 years instead of 30, so you’ll enjoy a lower rate and pay significantly less interest over time. That said, your monthly payments will be much higher with a 15-year loan, because you’re paying off that balance in a much shorter time frame.

Most buyers opt for a 30-year fixed loan so their monthly payments are more affordable.

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What’s the deal with points and credits?

Points allow you to “buy down” your mortgage rate by prepaying some of your interest. Usually, one discount point costs 1% of the loan amount and lowers your interest rate by 0.25%.

Some lenders also offer credits, where you can pay a higher rate in exchange for cash to cover some of your closing costs. Credits are considered negative points, and a 0.25% increase in rate will usually give you 1% of your loan amount in cash to offset closing costs.

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What mortgage terms do I need to know?
  • Mortgage rate: Your mortgage rate is the interest you pay on your home loan.
  • APR: Your APR is the interest you pay on your home loan plus lender and financing fees, all rolled into one all-inclusive rate.
  • Fixed-rate mortgage: A fixed-rate mortgage has the same mortgage rate over the entire loan term and the payment amount never changes (except taxes and insurance can go up over time).
  • Adjustable-rate mortgage: An adjustable-rate mortgage features a lower introductory rate for a period of time, followed by periodic market rate adjustments.
  • Monthly payment: Your monthly mortgage payment is the amount you pay each month for your home loan, typically including principal, interest, taxes, and insurance.
  • Principal: Principal is the initial loan amount.
  • Interest: Interest is what the lender charges you to borrow money.
  • Points: Points allow you to lower your mortgage rate by paying the lender some interest upfront.
  • Closing costs: Closing costs are the fees you pay to close on your new home. They include lender fees and other third-party fees like property taxes, title insurance, and escrow.
  • Rate lock: Most lenders offer the opportunity to lock in your rate for period of time — typically between 30 and 90 days — while you close on your new home.
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Crunch the numbers with simple calculators

Home affordability

Find out what safe budgeting looks like for you with our Home Affordability Calculator.

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Down payment

Use HomeLight’s Down Payment Calculator to estimate how much you should put down on a home and which loan options work best for you.

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Closing costs

Our Closing Costs Calculator helps you estimate how much cash you need at the closing table for lender and third-party fees.

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