7 Ways to Lower Your Mortgage Interest Rate

Your mortgage rate directly impacts how much you'll pay over 15-30 years. Even a 0.5% reduction can save $30,000+ on a typical mortgage. Here are seven proven strategies to lower your rate.

1. Improve Your Credit Score

Impact: Each 20-point credit score increase can lower your rate by 0.25-0.5%

Example: On a $300,000 mortgage:
• 680 credit score: 7.0% rate = $1,996/month
• 740 credit score: 6.5% rate = $1,896/month
• Savings: $100/month, $36,000 over 30 years

Quick Credit Boosting Tactics

• Pay down credit card balances below 30% utilization
• Dispute any errors on credit reports
• Don't close old credit cards
• Avoid new credit applications for 6 months before applying
• Become an authorized user on someone's excellent credit card

Timeline: Can see 20-50 point improvement in 2-6 months

2. Increase Your Down Payment

Impact: Putting down 20%+ eliminates PMI and can lower your rate by 0.25-0.5%

Lenders reward lower loan-to-value (LTV) ratios with better rates:

• 95% LTV (5% down): Highest rates
• 90% LTV (10% down): Moderate rates
• 80% LTV (20% down): Better rates, no PMI
• 75% LTV (25% down): Best rates

Example: $300,000 home
• 10% down ($30,000): 6.75% rate + $200/month PMI
• 20% down ($60,000): 6.25% rate, no PMI
• Savings: $300/month, $108,000 over 30 years

Strategy: If you don't have 20%, consider waiting a few more months to save more or asking family for gift funds.

3. Buy Mortgage Points

Impact: Each point (1% of loan amount) typically lowers rate by 0.25%

How it works: Pay upfront to reduce your rate permanently

Example: $300,000 loan at 6.5%
• Buy 2 points for $6,000
• Rate drops to 6.0%
• Monthly savings: $90
• Break-even: 67 months (5.6 years)
• After break-even: Pure savings

When to buy points:

• You plan to keep the home 7+ years
• You have extra cash but don't need it for emergencies
• You're in a high tax bracket (points may be deductible)

When to skip points:

• You might move or refinance within 5 years
• You need cash for home improvements
• You can invest money at returns higher than the savings

4. Choose a Shorter Loan Term

Impact: 15-year mortgages typically have rates 0.5-0.75% lower than 30-year

Example: $300,000 loan
• 30-year at 6.5%: $1,896/month, $382,480 total interest
• 15-year at 5.75%: $2,493/month, $148,740 total interest
• Total savings: $233,740!

Trade-off: Higher monthly payment ($597 more) but massive long-term savings

Hybrid approach: Get a 30-year mortgage but pay it like a 15-year. You get flexibility with option to reduce payments if needed.

5. Shop Multiple Lenders

Impact: Rates can vary by 0.5-1.0% between lenders for the same borrower

Rule: Get quotes from at least 5 lenders:

• 2 large national banks
• 1 local credit union
• 2 online mortgage lenders

Example differences:
• Lender A: 6.75%
• Lender B: 6.50%
• Lender C: 6.25%
• Lender D: 6.375%
• Lender E: 6.125%
Best vs worst: 0.625% difference = $20,000+ over 30 years

6. Time Your Application Strategically

Impact: Rates fluctuate daily based on economic factors

Best Times to Lock a Rate

• When the Federal Reserve signals rate cuts
• During economic uncertainty (rates often drop)
• Mid-week (rates sometimes better than Mondays/Fridays)
• When you see rates trending down

Float vs. Lock Strategy

Lock immediately when:

• Rates are historically low
• Economic indicators suggest rates will rise
• You can't afford higher payments if rates increase

Float (wait) when:

• Rates are trending downward
• You have 60+ days until closing
• You can afford slightly higher rates if wrong

7. Negotiate and Ask for Rate Matching

Impact: 30-50% of borrowers who ask get some concession

What to Say

Leverage Points

• Multiple competing quotes
• Existing relationship with the bank
• Strong financial profile
• Willingness to move more business to them (checking, savings, etc.)

Negotiable Items Beyond Rate

If they won't budge on rate, negotiate:

• Lender fees reduction
• No origination fee
• Appraisal fee waived
• Closing cost credits

Bonus Strategy: Refinance When Rates Drop

General rule: Refinancing makes sense when you can lower your rate by 0.75-1.0%

Example: $300,000 remaining at 7.0%, 25 years left
• Current payment: $2,120/month
• Refinance to 6.0%, new 30-year: $1,799/month
• Savings: $321/month
• Closing costs: $6,000
• Break-even: 19 months
• After 19 months: Pure savings

Action Plan

3-6 Months Before Applying

1. Check credit score and begin improvement plan
2. Pay down credit card balances
3. Increase savings for larger down payment
4. Avoid new credit or large purchases

1 Month Before Applying

1. Research current rates
2. Decide on loan term (15 vs 30 year)
3. Calculate how much you can put down
4. Get pre-approved from your bank for baseline

Application Period

1. Apply to 5 lenders within 14 days
2. Compare all offers carefully (rate + fees)
3. Negotiate with your preferred lender
4. Decide whether to buy points
5. Lock your rate when comfortable

Common Mistakes to Avoid

• Accepting first offer without shopping
• Focusing only on rate, ignoring fees
• Making large purchases before closing
• Changing jobs during application process
• Opening new credit accounts
• Making cash deposits (looks like undocumented income)

Key Takeaways

• Improve credit score for best rates (20+ point bump helps)
• 20% down payment eliminates PMI and lowers rate
• Buy points if staying 7+ years
• 15-year mortgages have lower rates and massive interest savings
• Shop 5+ lenders—rates vary significantly
• Time your application strategically
• Always negotiate and ask for rate matching

Even small rate improvements compound to massive savings over a mortgage's life. Use our mortgage calculator to see your potential savings.