Mortgage rates have been on a rollercoaster ride, leaving many potential homebuyers and homeowners wondering when they’ll finally dip back down to more affordable levels.

If you’re tired of waiting for lower rates, you’re not alone. But here’s the good news:

You don’t have to sit idly by. There are steps you can take right now to secure a lower interest rate on your mortgage.

In this article, we’ll explore actionable strategies to help you get a better deal, including tips on raising your credit score, leveraging loan types, and keeping an eye on the market.

Current Mortgage Rates and Market Outlook

As of 2024, mortgage rates are hovering around 7% for a 30-year fixed-rate mortgage. This is significantly higher than the sub-3% rates seen just a few years ago.

The Federal Reserve’s efforts to combat inflation through interest rate hikes have kept mortgage rates elevated, with the Fed signaling that rates may remain high until inflation is fully under control.

However, some experts predict that rates could begin to decline gradually as the economy stabilizes.

If you’re waiting for a significant drop, though, you might be in for a long wait. Instead, consider taking proactive steps to secure a lower rate now.

1. Improve Your Credit Score

Your credit score plays a crucial role in determining the interest rate you’ll qualify for. Lenders view a high credit score as an indicator of reliability, which can lead to lower interest rates on your mortgage. Here’s how you can improve your credit score:

• Pay Down Debt: High balances on credit cards can negatively impact your credit utilization ratio. Aim to keep your credit utilization below 30% of your available credit.
• Make Timely Payments: Late payments can significantly hurt your credit score. Set up automatic payments or reminders to ensure you never miss a due date.
• Avoid Opening New Credit Accounts: Each time you apply for new credit, it triggers a hard inquiry on your credit report, which can temporarily lower your score. Focus on maintaining existing accounts.
• Check Your Credit Report: Errors on your credit report can drag down your score. Obtain a free copy of your credit report from the major credit bureaus (Equifax, Experian, and TransUnion) and dispute any inaccuracies.

Aiming for a credit score of 740 or higher can help you secure the best rates available. If your score is currently lower, don’t worry—consistent effort over a few months can lead to significant improvements.

2. Consider Different Loan Types

Not all mortgages are created equal, and choosing the right type of loan can lead to a lower interest rate. Here are a few options to explore:

• Adjustable-Rate Mortgage (ARM): An ARM typically starts with a lower interest rate than a fixed-rate mortgage. While the rate can increase after an initial period, this option can be beneficial if you plan to sell or refinance before the rate adjusts.
• VA Loans: If you’re a veteran or active-duty service member, a VA loan might offer lower rates and more favorable terms compared to conventional loans.
• FHA Loans: These loans, backed by the Federal Housing Administration, often have lower interest rates and down payment requirements, making them a good option for first-time homebuyers or those with lower credit scores.

3. Make a Larger Down Payment

The more money you can put down upfront, the less risk you pose to lenders. This can translate into a lower interest rate on your mortgage. A down payment of 20% or more can often help you avoid private mortgage insurance (PMI) and secure a better rate. If 20% isn’t feasible, even a slightly larger down payment than required can make a difference.

4. Shop Around for the Best Rate

Mortgage rates can vary significantly from one lender to another, so it pays to shop around. Obtain quotes from multiple lenders, including banks, credit unions, and online mortgage lenders. When comparing offers, pay attention to:

• Interest Rate: The primary factor in determining your monthly payment.
• Annual Percentage Rate (APR): This includes the interest rate plus other loan costs, giving you a more comprehensive view of the total cost.
• Loan Fees: Origination fees, application fees, and other costs can vary widely between lenders.

5. Lock in Your Rate at the Right Time

Timing is everything when it comes to locking in your mortgage rate. Rates can fluctuate daily based on economic news, market conditions, and Federal Reserve policies. Keep an eye on the market and be prepared to lock in a rate when it’s favorable. Some lenders offer rate lock options that allow you to lock in a rate for a set period while you complete the home-buying process.

6. Consider Discount Points

Discount points are a way to “buy down” your interest rate by paying an upfront fee. One point typically costs 1% of your loan amount and can reduce your interest rate by about 0.25%. This option can be beneficial if you plan to stay in your home for a long time, as the savings over time can outweigh the initial cost.

7. Refinance Your Mortgage

If you’re already a homeowner, refinancing can be a powerful tool to lower your interest rate. Refinancing involves replacing your current mortgage with a new one, ideally at a lower rate. Here are some scenarios where refinancing might make sense:

• Your Credit Score Has Improved: If your credit score has increased since you first obtained your mortgage, refinancing could help you qualify for a lower rate.
• Interest Rates Have Dropped: Even a small decrease in rates can lead to significant savings over the life of your loan.
• You Want to Switch Loan Types: Refinancing allows you to switch from an ARM to a fixed-rate mortgage, or vice versa, depending on your financial goals.

8. Keep an Eye on Economic Indicators

Understanding the factors that influence mortgage rates can help you anticipate rate changes and make informed decisions. Here are a few key indicators to watch:

• Federal Reserve Announcements: The Fed’s decisions on interest rates directly impact mortgage rates. When the Fed raises rates to combat inflation, mortgage rates typically increase as well.
• Inflation Data: Higher inflation generally leads to higher mortgage rates, as lenders demand higher returns to compensate for the eroding value of money.
• Employment Reports: Strong job growth and low unemployment can lead to higher rates, while economic uncertainty may cause rates to fall.

Will Mortgage Rates Decline?

Predicting the future of mortgage rates is challenging, but some experts believe that rates could start to decline if inflation is brought under control and the economy stabilizes. However, waiting for rates to drop significantly may not be the best strategy if you’re in the market for a home now.

By taking the steps outlined above, you can improve your chances of securing a lower rate, regardless of market conditions. Whether it’s boosting your credit score, shopping around for the best deal, or refinancing your current mortgage, proactive measures can save you money and make homeownership more affordable.

The Bottom Line

Mortgage rates may be higher than in recent years, but that doesn’t mean you’re powerless. By improving your credit score, considering different loan types, making a larger down payment, and shopping around, you can take control of your mortgage journey and secure a better rate today. Keep an eye on economic trends and consider locking in a rate when the timing is right. With careful planning and strategic action, you can achieve your homeownership goals without waiting for the perfect market conditions.