7 Ways to Secure a Lower Interest Rate Mortgage

By Laurel Tincher · May 08, 2024 · 8 minute read

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7 Ways to Secure a Lower Interest Rate Mortgage

Obtaining a mortgage with a reduced interest rate is a crucial objective for many prospective homeowners. Getting a good interest rate can save borrowers thousands of dollars over the course of a loan and have a big impact on your financial health.

It takes research and preparation to navigate the complicated world of mortgage rates, but making the effort can pay off with lower monthly payments and significant long-term savings.

What Is the Best Way to Get a Lower Mortgage Rate?

Although there’s no one-size-fits-all approach that will help homebuyers qualify for a mortgage at a reduced mortgage rate, there are a few crucial steps one can take. These include carefully tending your credit score and diligently comparing lenders and financing choices.

This may be especially daunting to first-time homebuyers, but borrowers who learn how to lower their mortgage interest rate can better their chances of long-term financial stability and successful homeownership.

💡 Quick Tip: SoFi’s award-winning mortgage loan experience means a simple application — we even offer an on-time close guarantee. We’ve made $7.5 billion in home loans so we know a thing or two about what makes homebuyers happy.‡

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


Pros and Cons of a Lower Mortgage Rate as a Home Buyer

As a prospective homeowner, getting a reduced mortgage rate could offer many benefits, though there are a few potential challenges as well.

Pros:

•   Decreased monthly payments: A lower interest rate usually results in a lower monthly mortgage payment, giving you more money for investments or other expenses.

•   Long-term savings: Depending on the loan amount and term, even a small interest rate reduction can save a significant amount of money over the course of the loan — possibly tens of thousands of dollars. Experiment with a mortgage calculator to see how the interest rate and loan term impact the total interest paid over the life of the loan.

•   Building equity faster: As a result of lower interest rates, a larger portion of your monthly payment is applied toward paying off the loan, hastening the process of building equity in your house.

Cons:

•   Qualification requirements: Borrowers with a strong credit rating, steady income, and a sizable down payment are frequently eligible for the lowest rates offered by lenders. Achieving these requirements may prove difficult for some buyers.

•   Higher upfront costs: Securing a lower interest rate may require paying higher upfront costs, such as points or a big down payment.

•   Limited availability: Some purchasers may find that the lowest advertised rates are only accessible to customers who qualify for certain loan types under particular circumstances.

•   Market volatility: Interest rates can change over time for an array of economic reasons. An adjustable-rate mortgage may offer a borrower a low initial interest rate, but savings could be outweighed by rate hikes in the future.

Recommended: The Best Affordable Places to Live in the U.S.

Ways to Get a Lower Mortgage Rate

If you’re wondering how to get a lower interest rate on a mortgage, here are tactics you’ll want to take a look at:

Shop for Mortgage Rates

Finding the best loan terms for a house purchase requires doing your research on mortgage interest rates. Get quotes first from a variety of lenders, such as banks, credit unions, and online lenders. Consider whether you are eligible for a loan guaranteed by the government, such as a VA loan (from the U.S. Department of Veterans Affairs) or an FHA loan, backed by the Federal Housing Administration. Don’t accept the first mortgage deal you run across; shop around and compare rates offered by different lenders.

To evaluate rates, fees, and terms side by side, make use of online comparison tools. Never be afraid to ask a lender if they can match a competitor’s rate or give better conditions. Other considerations, like closing expenses and the caliber of the customer service, may influence your choice of mortgage, and the lowest rate that is advertised may not always be the best one. Make sure you have researched your selection and that it is in line with your long-term financial objectives.

Nurture Your Credit Score

Borrowers with better credit scores usually receive reduced rates from lenders. A better rate might result from paying your bills on time, cutting overall debt, fixing any inaccuracies on your credit report — or all three. Get a copy of your credit report from each of the big credit reporting agencies, check it for accuracy, and quickly request fixes for any inaccuracies. Next, focus on paying off current debts on time, maintaining modest credit card balances, and refraining from creating new credit lines unnecessarily.

Choose Your Loan Term Carefully

Investigate different types of mortgage loans, including fixed-rate and adjustable-rate mortgages (ARMs). Each type has a different interest rate structure and set of requirements. Shorter loan terms of 15 or 20 years usually have cheaper interest rates than 30-year mortgages, which results in significant savings over the course of the loan. They also typically have larger monthly payments.

Longer loans spread out payments over an extended period of time, which lowers the monthly payment but comes with higher overall interest charges. When choosing a loan term, take your cash flow, long-term objectives, and financial status into account. While a longer term could offer more flexibility with lower monthly payments, choosing a shorter term can help save money and allow you to pay off the mortgage sooner.

Make a Larger Down Payment

Increasing your down payment is one of the best ways to get a lower mortgage rate. For borrowers who are able to make a substantial down payment — typically 20% or more of the purchase price of the home — lenders frequently offer lower interest rates. A higher down payment shows financial responsibility and lowers the lender’s risk, which makes for a more desirable borrower. Borrowers can also eliminate private mortgage insurance (PMI) with a sizable down payment, which further reduces your monthly payment. Although stowing away a down payment takes time and discipline, there could be significant interest savings over the course of the loan.

Buy Mortgage Points

Purchasing discount points, sometimes referred to as mortgage points, can be a calculated move to obtain a cheaper mortgage rate. Each point costs 1% of the total loan amount and lowers the interest rate by a specific amount, usually 0.25% per point. Although purchasing points necessitates a one-time payment, it might provide substantial savings during the loan term. Before you purchase points, make sure you set aside cash reserves for emergencies. And ask yourself if you plan to stay in the house past the breakeven point (the point at which the monthly savings from a lower payment equal the initial cost of purchasing points).

Lock in Your Mortgage Rate

Once you’ve found a good rate and gone through the mortgage preapproval process, locking in your rate is a crucial step in protecting against potential rate increases during the closing process. When a rate is locked in, the lender agrees to guarantee the agreed-upon interest rate for a predetermined amount of time — usually 30 to 60 days — while the loan application is being processed. This guarantees that the rate won’t change during this time, even if market rates rise. If rates drop, though, one might not be able to benefit from the lower rates unless the lender has a float-down option.

Refinance Your Mortgage

If mortgage rates drop significantly (or your financial profile improves markedly) after you purchase your home, refinancing your mortgage can cut monthly payments and total loan costs. But it’s crucial to take into account refinancing charges, like appraisal and closing costs, and balance these against the possible savings from a lower rate. Homebuyers should think about long-term financial objectives and how refinancing fits within their total budget. Working with a reliable lender and thoroughly weighing options can help one decide if refinancing is the best course of action.

💡 Quick Tip: Have you improved your credit score since you made your home purchase? Home loan refinancing with SoFi could get you a competitive interest rate with lower payments.

Searching for Mortgage Rate Tips

Start by keeping an eye on market developments and learning how the economy affects mortgage rates. To be eligible for reduced rates, carefully manage your credit score. You can also get reasonable rates and better conditions by shopping around and comparing offers from different lenders. To optimize savings, think about the advantages of increasing your down payment, buying discount points, and selecting the ideal loan term. Lock in a cheaper rate while the market is favorable.

Recommended: Home Loan Help Center

The Takeaway

Prospective homeowners can improve their chances of obtaining a favorable rate and ultimately save a large amount of money over the course of their loan by raising their credit score, shopping around for the best rates, and negotiating with lenders. Market conditions, lender competition, and your individual financial situation will factor into your mortgage terms. Greater financial stability can be achieved from taking proactive measures to achieve a cheaper mortgage rate, whether through buying discount points or increasing the down payment.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can you ask your mortgage company to lower your interest rate?

Yes, you can negotiate with your mortgage company to potentially lower your interest rate before you sign on for a loan. After you have a mortgage, you could ask your lender about a mortgage recast or a refinance.

What makes mortgage interest rates go down?

Mortgage interest rates can decrease due to factors such as economic downturns, changes in federal monetary policy, and market competition among lenders.

Can you negotiate a lower interest rate on a mortgage?

Yes, you can use variables like your creditworthiness, the state of the market, and lender competition to negotiate a lower interest rate on a mortgage.


Photo credit: iStock/Delmaine Donson
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

SoFi On-Time Close Guarantee: If all conditions of the Guarantee are met, and your loan does not close on or before the closing date on your purchase contract accepted by SoFi, and the delay is due to SoFi, SoFi will give you a credit toward closing costs or additional expenses caused by the delay in closing of up to $10,000.^ The following terms and conditions apply. This Guarantee is available only for loan applications submitted after 04/01/2024. Please discuss terms of this Guarantee with your loan officer. The mortgage must be a purchase transaction that is approved and funded by SoFi. This Guarantee does not apply to loans to purchase bank-owned properties or short-sale transactions. To qualify for the Guarantee, you must: (1) Sign up for access to SoFi’s online portal and upload all requested documents, (2) Submit documents requested by SoFi within 5 business days of the initial request and all additional doc requests within 2 business days (3) Submit an executed purchase contract on an eligible property with the closing date at least 25 calendar days from the receipt of executed Intent to Proceed and receipt of credit card deposit for an appraisal (30 days for VA loans; 40 days for Jumbo loans), (4) Lock your loan rate and satisfy all loan requirements and conditions at least 5 business days prior to your closing date as confirmed with your loan officer, and (5) Pay for and schedule an appraisal within 48 hours of the appraiser first contacting you by phone or email. This Guarantee will not be paid if any delays to closing are attributable to: a) the borrower(s), a third party, the seller or any other factors outside of SoFi control; b) if the information provided by the borrower(s) on the loan application could not be verified or was inaccurate or insufficient; c) attempting to fulfill federal/state regulatory requirements and/or agency guidelines; d) or the closing date is missed due to acts of God outside the control of SoFi. SoFi may change or terminate this offer at any time without notice to you. *To redeem the Guarantee if conditions met, see documentation provided by loan officer.​​
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
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