Compare mortgage rates in Alabama.

Introduction to Mortgage Rates

Your mortgage interest rate is the fee you pay a lender for the privilege of borrowing money needed to purchase your home. Even during times of low rates, interest can accumulate significantly over the length of a mortgage term. Therefore, it’s crucial for homebuyers in Alabama to secure the lowest possible mortgage rate.

To get the best rate for your unique situation, it can help to understand how mortgage rates are set. Home loan interest rates can vary based on the type of mortgage, the borrower’s credit score, and the current economic climate. Here’s a brief rundown of mortgage rate factors:

Where Do Mortgage Rates Come From?

Alabama mortgage rates are influenced by a variety of personal and economic variables, including:

•  The Federal Reserve: The Fed is the central bank of the United States that sets monetary policy, which can impact mortgage rates. When the Federal Reserve raises their interest rates, mortgage rates tend to follow suit.

•  The economy: The overall health of the economy can affect mortgage rates. When the economy is strong, mortgage rates tend to be lower. When the economy is weak, mortgage rates tend to be higher.

•  Inflation Inflation is the rate at which the prices of goods and services increase over time. When inflation is high, mortgage rates tend to be higher. When inflation is low, mortgage rates tend to be lower.

•  Supply and demand: The supply of and demand for mortgages can also affect mortgage rates. When there is a high demand for mortgages, mortgage rates tend to be higher. When there is a low demand for mortgages, mortgage rates tend to be lower.

How Interest Rates Affect Home Affordability

Alabama mortgage interest rates play a significant role in determining the affordability of a home. The higher the interest rate, the more expensive the monthly mortgage payments will be. For example, a $200,000 loan with a 3.00% interest rate will have a monthly payment of $843. The same loan with a 6.00% interest rate will have a monthly payment of $1,199. That’s 42% higher for the same home.

Should Homebuyers Wait for Interest Rates to Drop?

Whether or not you should wait for interest rates to drop is a personal decision. There is no guarantee that interest rates will drop in the future, although the Fed has indicated it will lower rates into 2025. And if you’re buying your first home, you may find that there’s never a perfect time to enter the housing market.

When you find a home that checks all the boxes and you can afford the monthly payments, you may decide to lock in a mortgage rate rather than waiting for rates to drop.

Alabama Mortgage Rate Trends

Mortgage rates in Alabama have trended upward in recent years. The average 30-year fixed mortgage rate nationwide was 3.15% in 2021. It increased to 5.53% in 2022 and 7.00% in 2023. In 2024, however, rates began falling, landing at 6.20% in mid September, according to Freddie Mac data.

Mortgage rates in Alabama tend to be higher in the spring and summer months, and lower in the fall and winter months. That’s because there is more demand for mortgages during the spring and summer months.

Below you’ll find the average annual interest rate for Alabama and the United States for 2000 through 2018. (The FHFA stopped reporting the data in 2018.)

Historical Interest Rates in Alabama

Historical U.S. Mortgage Rates

Factors Affecting Mortgage Rates in Alabama

In addition to the factors that affect mortgage rates nationwide, there are also state-specific factors that can influence mortgage rates in Alabama. These include:

Economic Factors

The overall health of the Alabama economy can impact mortgage rates. When the Alabama economy is strong, mortgage rates tend to be lower. When the Alabama economy is weak, mortgage rates tend to be higher.

Consumer Factors

A borrower’s credit score and down payment can also affect mortgage rates in Alabama. Borrowers with higher credit scores and larger down payments tend to receive lower mortgage rates.

Types of Mortgages Available in Alabama

There are a variety of mortgage types available in Alabama, each with its own unique features and benefits. These include:

Fixed Rate Mortgage

Fixed-rate mortgages offer a consistent interest rate for the entire life of the loan. This can provide stability and predictability for borrowers, as they will know exactly how much their monthly mortgage payments will be.

Adjustable Rate Mortgage (ARM)

Adjustable-rate mortgages (ARMs) offer a lower initial interest rate than fixed-rate mortgages. However, the interest rate on an ARM can adjust up or down periodically. ARMs are therefore more risky than fixed-rate mortgages, but can also save borrowers money if interest rates decrease.

FHA Loan

FHA loans are insured by the Federal Housing Administration (FHA) and are designed for borrowers with lower credit scores and smaller down payments. FHA loans typically have higher fees than conventional loans, but they can make it possible for borrowers to purchase a home who would not otherwise be able to.

VA Loans

VA loans are available to veterans, active-duty military members, and some reserve and National Guard members. VA loans do not require a down payment and typically offer lower interest rates and fees than conventional loans.

USDA Loans

USDA loans are available to low-income borrowers who are purchasing a home in a rural area. USDA loans do not require a down payment and typically offer lower interest rates than conventional loans.

Jumbo Loans

Jumbo loans are available for borrowers who need to borrow more than the conforming loan limit, which is $806,500 for a single unit in Alabama. Jumbo loans typically have higher interest rates than conforming loans, but they can allow borrowers to purchase more expensive homes.

Popular Places to Get a Mortgage in Alabama

There are many great places to get a mortgage in Alabama. Some of the most popular cities still have a lower cost of living than the national average.
Cost of living refers to the average monthly expenses for one person, not counting extras like entertainment and dining out.

Mobile

The median home price is $193,806, and the cost of living is 84.3% of the cost of living in the U.S.

Birmingham

The median home price is $131,435, and the cost of living is 91.9% of the national average.

Montgomery

The median home price is $193,806, and the cost of living is 87.3% of the national average.

Athens

The median home price is $306,400, and the cost of living is 86% of the national average.

Huntsville

The median home price is $281,798, and the cost of living is 91.5% of the national average.

Recommended: Best Affordable Places in the U.S.

6 Tips for Securing a Competitive Mortgage Rate in Alabama

There are a number of things that you can do to secure a competitive mortgage rate in Alabama. These include:

1.    Compare interest rates and fees: It’s important to compare interest rates and fees from multiple lenders before choosing a mortgage. This can help you save money over the life of your loan.

2.    Get preapproved: Getting preapproved for a mortgage can help strengthen your offer when you are buying a home. It can also help you lock in a mortgage rate. The mortgage preapproval process does take some time to complete, but it’s well worth it.

3.    Grow your credit score: Having a higher credit score can help you qualify for a lower mortgage rate. You can grow your credit score by paying your bills on time, reducing credit card debt, and avoiding taking on new debt.

4.    Make a larger down payment: A larger down payment can help you lower your loan-to-value ratio (LTV), which can lead to a lower mortgage rate. The LTV is the ratio of the loan amount to the appraised value of the home.

5.    Lower your debt-to-income ratio (DTI): Your debt-to-income ratio (DTI) is the sum of your monthly debt payments divided by your gross monthly income. Lenders typically want a DTI no higher than 36%. The lower your DTI, the better.

6.    Purchase discount points: Discount points are fees that borrowers can pay to reduce the interest rate on their mortgage. Each discount point typically costs 1% of the loan amount and can reduce the interest rate by 0.25%.

Alabama Home-Buying Assistance Resources

There are a number of resources available to help you get a mortgage in Alabama. These include first-time homebuyer and down payment assistance programs.

To qualify as a first-time homebuyer, you must not have owned or co-owned a primary residence within the past three years.

Here are a few available programs in Alabama:

•   Step Up is the flagship homeownership program of Alabama housing. It’s open to first-time and repeat homebuyers, and provides down payment assistance of up to 4% of the home’s sales price, up to $10,000, in the form of a second mortgage packaged with a 30-year, fixed-rate first mortgage.

•   The Affordable Income Subsidy Grant provides low-income borrowers with a percentage of their total loan amount to assist with closing costs. The grant is available to first-time and repeat homebuyers with a credit score of 620 or higher.

•   A mortgage credit certificate allows borrowers to reduce their federal tax liability by a percentage of their annual mortgage interest paid, up to $2,000, for the life of the loan. You must be a first-time homebuyer or buying in a target area and using any 30-year fixed-rate mortgage offered by an AHFA participating lender.

For more details, see our page on Alabama First-Time Home Buying Assistance Programs.

Tools & Calculators

There are a number of tools and calculators available to help you calculate your mortgage payments and compare different mortgage options. These tools can help you make informed decisions about your mortgage:

Refinancing Options in Alabama

If you already have a mortgage, you may be able to refinance it to get a lower interest rate. A mortgage refinance can save you money over the life of your loan or lower your monthly payments by extending your loan term.

Homeowners can refinance their homes multiple times, although some lenders require a waiting period of six to 12 months between refinances. Be sure to compare the costs and benefits of refinancing before you make a decision. Refinancing typically takes 30 to 45 days, but can be delayed by appraisals, inspections, and financing issues.

Here are a few specialized refinancing options you may not be aware of:

FHA Streamline Refinance: FHA Streamline Refinances are available to FHA-insured homeowners. These refinances offer minimal hassle and can help you get a lower interest rate.

VA Refinance Loan: Interest-rate reduction refinance loans (IRRRL) are available to VA loan holders who want to reduce their monthly payments. These loans offer lower APRs and can help you save money over the life of your loan.

Cash-Out Refinance: A cash-out refinance can allow you to borrow money against the equity in your home. This money can be used for a variety of purposes, such as home repairs, debt consolidation, or education expenses.

How to Get Preapproved

Getting preapproved for a mortgage strengthens your position as a buyer and allows you to move quickly when you find the right property. If you’re worried about interest rates rising, you can pay a fee to the lender to lock in your rate for up to 90 days.

Closing Costs, Taxes, and Fees in Alabama

When you buy a home in Alabama, you will need to pay closing costs. These costs can include:

•   Loan origination fee: This is a fee charged by the lender for processing your loan application.

•   Appraisal fee: Charged by the appraiser for determining the value of the home.

•   Credit report fee: Charged by the credit bureau for providing your credit report to the lender.

•   Title insurance: This is insurance that protects the lender against losses if there is a problem with the title to the home.

•   Recording fee: The county charges a fee for recording the deed to the home.

•   Transfer tax: The state charges a fee for transferring ownership of the home.

The total closing costs in Alabama are 2% to 5% of the purchase price of the home. That means, for a home priced at $375,000, the closing costs could range from $7,500 to $18,750.

Buyers can use an online closing cost calculator or obtain estimates from lenders to predict their closing costs. Be sure to compare the closing costs from multiple institutions before you choose a lender.

The Takeaway

Mortgage rates in Alabama vary depending on several factors, including economic conditions, consumer financial history, and government policies. Different mortgage types offer specialized characteristics and benefits. Borrowers can secure a competitive mortgage rate by comparing interest rates and fees among several lenders, improving their credit score, making a larger down payment, and applying for preapproval. Buyers in Alabama can expect to pay between 2%-5% of the home’s purchase price in closing costs.

FAQ

What is a mortgage rate?

A mortgage rate is the interest rate that a lender charges on a mortgage loan. This rate can vary depending on factors such as the borrower’s credit score, the loan amount, and the type of loan.

Will mortgage rates drop in Alabama?

It is difficult to predict if mortgage rates will drop in Alabama specifically, as they are affected by national and local economic factors. Mortgage rates in Alabama have been close to the historical average in recent years.

Will mortgage rates ever go back to normal?

What is considered a “normal” rate varies over time. In the past, mortgage rates have typically fluctuated between 4% and 6%, but it is impossible to predict if and when rates will return to this range.

Will Alabama home prices ever drop?

It is difficult to predict with certainty if Alabama home prices will drop in the future. However, real estate market trends and economic factors can give some insight into potential changes in home prices. For example, if there is an oversupply of homes on the market, prices may drop as sellers compete for buyers. Additionally, changes in interest rates or the overall economy can also impact housing prices.

Is it a good time to buy a house in Alabama?

The decision to buy a house in Alabama (or any location) ultimately depends on individual circumstances and personal preferences. However, there are some factors to consider when determining if it is a good time to buy a house in Alabama. These include the current housing market trends, interest rates, and personal financial stability. It may be beneficial to consult with a real estate agent or financial advisor for personalized advice.

How to lock in a mortgage rate?

To lock in a mortgage rate, you will need to work with a lender. Once you have found a mortgage rate that you are satisfied with, you can request to lock in that rate. This typically involves signing a contract or agreement with the lender, which will specify the terms and duration of the rate lock. It is important to note that some lenders may charge a fee for locking in a rate, so be sure to clarify any potential costs before proceeding.

How do mortgage interest rates work?

Mortgage interest is the cost of borrowing money from a lender to purchase a home. These rates can vary depending on the borrower’s credit score, down payment, loan type, and current market conditions. Mortgage interest rates can be either fixed or adjustable. Fixed rates remain the same throughout the life of the loan, while adjustable rates can change over time based on market conditions.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

*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.

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.

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