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If you are a home buyer who has been patiently waiting for mortgage interest to fall – or a homeowner who is stuck with a high rate and is looking for refinance — The wait for relief may soon be over. The Federal Reserve is set to deliver its first rate cut since 2020 this week, and while that may not equate to an immediate reduction in mortgage rates, it will help move them in a downward direction. Combined with additional federal funds rate cuts likely in November, December, and possibly into 2025, both buyers and owners are now in a position to secure significant financial relief.
One of the best ways to lower mortgage interest rate is to shop around to compare rates and lenders. This is easy to do with rates listed both on lender websites and with multiple offers listed in one place via online marketplaces. But when you’re shopping for mortgage rates, it’s crucial to know exactly what you’re looking at in order to accurately conduct a lender comparison. So what specifically should you be looking for? Below, we outline three things to look for when shopping for mortgage rates in the current climate.
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What to look for when comparing mortgage rates
While the mortgage rates you see online now and later this week may seem low, there are a few things you should check to verify what is being quoted. In particular, look for:
Mortgage points
Mortgage points serve as a fee the borrower pays the lender to secure a below-average interest rate. These can be expensive (often 1% of the total mortgage loan) but can still be beneficial in the right scenario. That said, some lenders may have preemptively included mortgage points in the interest rate they list on their website, making their offers appear lower than they are. You will have to agree to pay these points in order to get that offer, so be sure to look at the fine print or disclosures when you shop around to see if this is the case. If it is, the interest rate without the points included could be significantly higher than what you see.
Today, you can search for interest rates and lenders online in one place.
Borrower profile
Another factor to consider when shopping for mortgage rates is the perceived lender profile the bank has for those who do their research. In other words, the rate you see listed may be for those with the most attractive lender profile possible. If you don’t have a clean credit profile and a score in the 800 range, then what you see offered may not be what you can get. So don’t be surprised if the price you end up getting offered is significantly higher than what you saw online. And don’t hesitate to start working on your credit now so that you can better position yourself to obtain more attractive rates and conditions
The time the price was published
Mortgage rates change dailyexcept on weekends and holidays, so it’s crucial to check them often. When you do, try to see if you can pinpoint the exact time the rate was posted. For example, if you check mortgage rates on a Thursday before a rate decision is formally announced, you might not see a rate that reflects that adjustment. In this case, it might be worth waiting to see how that cut has been reflected in the market (in which case Friday’s rate offers might be more timely – and lower).
The heart of the matter
Comparing mortgage rates is a crucial part of the home buying process, but it’s just as important to do a thorough and accurate search. This means understanding that the rates you see listed may not be what you’re ultimately offered, as the published rates often take into account mortgage points and a specific lender profile. They also reflect a specific time and date. This may not be true for all lenders, especially in today’s dynamic interest rate environment. But it’s something to look into to increase your chances of getting the most cost-effective rate and term available, especially with interest rate cuts on the horizon.
Do you have more questions about mortgage rates? Read more here.
