Mortgage rates are constantly in a state of flux. At the very least, they share a direct correlation with the health of the market, and are subject to the “ups and downs” of the broader economy. That said, it could benefit prospective buyers to familiarize themselves with today’s mortgage rates, and the indicators that impact their movement.
The State Of Current Mortgage Rates
The state of the U.S. economy has given the Fed confidence to increase interest rates for the better part of two years. As recently as June 2017, the average rate on a 30-year fixed mortgage rested at 3.9%. Today, the rate on 30-year fixed mortgages has jumped to 5.04%. In 2018 alone, the interest rate on 30-year fixed mortgages has jumped slightly more than a point, but I digress. While interest rates are on the rise, they still remain near historical lows. Thirty years ago, in 1988, interest rates were in the double digits and rising—a far cry from today’s numbers.
Let’s take a look at today’s average mortgage interest rates, and how they differ between four of today’s most common loans:
- 30-Year Fixed-Rate Mortgage Interest: 5.04%
- 15-Year Fixed-Rate Mortgage Interest: 4.38%
- 5/1 Adjustable-Rate Mortgage Interest: 4.39%
- 30-Year Jumbo Mortgage Interest: 4.92%
While the aforementioned interest rates are directly correlated to the current market environment, they can change—seemingly overnight. Therefore, it’s a good idea to keep your finger on the pulse of the indicators that may “move the needle.” Those with at least some idea of how interest rates work may find they have a distinct advantage, which begs the question: What indicators have been known to influence short-term mortgage rates?
Typically, mortgage rates rise and fall in conjunction with the state of the economy. It is quite common to see mortgage rates rise in a healthy economy, whereas a down economy may elicit lower rates. More specifically, mortgage rates tend to fall when stock prices drop, foreign markets slide, unemployment rises, and inflation tempers. Conversely, rates typically rise when the stock market does well, foreign markets are healthy, unemployment is low, and inflation speeds up.
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How To Find The Right Mortgage Lender
Mortgage interest rates and terms will vary from lender to lender, which means it is incredibly important to find the best loan originator for your situation. If you need help finding a good lender, try using some of the following tips:
- Get To Know The Players: Finding the right mortgage lender will be incredibly difficult if you neglect to vet all of the options available. You can’t possibly know you have the right mortgage if you didn’t compare each and every lender in today’s crowded field. At the very least, you’ll want to set up a meeting with a representative from credit unions, mortgage bankers and correspondent lenders. Talk over the current terms each are offering and weigh the pros and cons. Only choose one over the others if you are confident they are the right fit for the impending transaction.
- Receive Pre-Approval Not to be confused with pre-qualification, pre-approval will help you develop a closer relationship with your impending lender. In providing more specific details about your financial past (and a processing fee), you can gain insight into how much money you will be able to borrow, down to the dollar. Not only that, but you’ll also have a better idea of interest rate obligations.
- Compare Rates: Again, the broader economy will dictate where mortgage rates are. However, lenders typically offer lower rates to compete for business. It’s quite common for the competition between banks and lenders to drop mortgage rates, and those that shop around could benefit immensely. It is in your best interest to take a look at all of the rates offered by each lender.
- Ask A Lot Of Questions: Rates are far from the only thing borrowers should use to determine which loan to choose; terms and conditions are equally as important, if not more so. Be sure to read the fine print and ask as many questions as you can until you are comfortable making an informed decision. How long are your turnaround times on pre-approval, appraisal and closing? Do you provide any closing cost incentives? Are there any down payment requirements? Are there fees for paying off the loan early? Leave no stone unturned and don’t hesitate to ask any questions. Doing so will help you narrow down your choice to those that fit your needs the best.
How To Secure The Best Mortgage Rate
Mortgage terms and rates constantly change, but there are a few thing you can do as a borrower to make sure you get the best deal possible:
- Fix Your Credit Score: The better your credit score, the better the interest rate you are likely to receive. After all, those with better credit scores are considered less of a risk, which awards at least some peace of mind to lenders. In return, they may be willing to offer a lower rate. Get a head start and address your credit score early. Fix any blemishes that appear and raise your credit profile as much as possible.
- Provide Your Employment History: In addition to boasting an encouraging credit score, borrowers are advised to have their employment history readily available. Doing so will tell the bank that you are less of a risk. A good employment history should suggest that borrowers are less of a risk, which begs the question: What’s a good credit history? They’ll want to see pay stubs and W-2s for at least two years; the more, the better.
- Put More Money Down: Prospective homebuyers will typically be able to receive lower interest rates if they put more money down at signing. Twenty percent, in particular, seems to be the “gold standard.” Borrowers that are able to put at least 20% down won’t need to pay private mortgage insurance, and their lender may offer a lower rate.
- Shorten The Duration: It is entirely possible to get an adjustable-rate mortgage with a five- to seven-year low-interest introductory period. That, of course, is only recommended for those looking to get in and out of a property quickly.
Mortgage terms and rates are directly correlated to the current state of the economy. Typically, rates will increase when the economy is getting healthier. Consequently, mortgage rates tend to lower when the economy doesn’t have the strength to support them. Case in point: rates are on the rise, but prospective buyers shouldn’t be worried. Not only does the increase suggest the market is healthy enough to support subsequent jumps, but rates are still historically low. Now is a great time to lock in relatively low mortgage rates, as it looks like they should continue to increase for at least the foreseeable future.
- Mortgage rates today are near historically low levels, and actually represent a good deal despite their tempered climb.
- Current mortgage rates are the result of more than a year of increases made by the Fed.
- With a better understanding of mortgage rates and how they work, potential buyers could should around for a better deal and potentially save thousands of dollars on a loan.