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Mortgage rates continue their upward climb, with Freddie Mac data showing rates now sit above 6%. And according to Bankrate data from September 21, which looked at overnight average rates from advertisers on its site, 30-year fixed mortgages now sitting at 6.53%. The national average for 15-year fixed-rate mortgage loans — though it has increased since August — did dip slightly from a day prior to 5.75%, Bankrate found. ( See the lowest mortgage rates you may get now here ).
How to get a lower mortgage rate
There are a number of things you can do now to get a lower mortgage rate. First up, if you can afford it, shortening your loan can prove beneficial. Indeed, 15-year mortgage rates continue to be less than 30-year mortgage rates.
It also may be worth considering an adjustable rate mortgage (ARM), if it makes sense for your long term plans. The latest Bankrate data shows that average rates on 5/1 ARMS (rates are fixed for five years, then adjust) are 4.84%, considerably lower at the start than both the 15-year and 30-year fixed rate mortgages. That said, ARMs often make the most sense for short-term homeowners who only plan to be in the same home for 5 to 7 years. Because ARM rates become variable, “ARMs can be risky, and in the long run they may end up costing more than a fixed mortgage with a higher upfront rate,” Jacob Channel, LendingTree’s senior economic analyst, recently told MarketWatch Picks.
Experts advise shopping around, getting quotes from 3-to-5 lenders, figuring out your credit score (improve it if needed) and debt-to-income ratio (DTI), to help you determine what rate you’ll pay, regardless of whether you get a 15-year fixed, 30-year fixed or an ARM. To calculate your DTI, divide your monthly debt payments (mortgage; credit card payments; auto, student or personal loans; child support) by your gross monthly income. If the number you come out with is at or below 36%, your chances of qualifying for a mortgage, and at a better rate, are better than if you come out with a higher number as your DTI.
Another way to lower your mortgage rate is to use discount points, which are fees paid to reduce an interest rate. Typically, one point decreases the interest rate by 0.25%, though this can vary. “When you pay discount points, you’re handing the lender a chunk of interest payments up front in exchange for paying less interest every month,” Holden Lewis, home and mortgage expert at Nerdwallet, recently told MarketWatch Picks. But note that there may be limits to how many discount points you can buy, and buying points may not make sense, especially if you don’t plan to stay in the home for long.
This MarketWatch Picks guide has additional tips to help you save on your mortgage, including utilizing first-time buyer programs, getting quotes from 3-5 different lenders, and more.
Mortgage rates in this article reflect Bankrate’s average rates. A previous version simply referred to them as average rates.