What moves your mortgage rate up or down
Your mortgage rate depends on five things lenders look at: your credit score, the size of your down payment, the loan term you choose, current market rates, and the type of property. You cannot control market rates, but you can control the other four. A higher credit score usually gets you a lower rate — the difference between a 620 and a 760 score can be 0.5 to 1 percentage point. A larger down payment (20 percent instead of 5 percent) also lowers your rate because the lender's risk is smaller. A 15-year loan costs more per month but carries a lower rate than a 30-year loan for the same amount.
The property itself matters too. A single-family home on its own lot usually gets a better rate than a condo or a multi-unit building, because lenders see them as lower risk. The location and condition of the house affect the rate as well, though less dramatically than credit score or down payment size.
Key Takeaways
- Your credit score is the single biggest thing you control — even a 50-point improvement can lower your rate by 0.25 percentage points.
- Getting pre-approved by multiple lenders (not just one) lets you compare actual rate offers, not estimates, and takes about 15 minutes per lender.
- Paying points (prepaid interest) at closing can lower your rate, but only makes financial sense if you plan to stay in the house at least five to seven years.
- The difference between a 30-year and 15-year loan is not just the monthly payment — the 15-year loan will have a rate 0.3 to 0.5 percentage points lower.
- Locking your rate too early (more than 60 days before closing) costs money if rates drop, but waiting too long leaves you unprotected if they rise.
Improve your credit score before you shop for a rate
Lenders pull your credit report when you ask for a pre-approval. The score they see determines the rate they offer. If your score is below 700, spending two to three months paying down debt and making on-time payments can move it up 30 to 50 points — enough to save you $50 to $100 per month on a $300,000 loan.
The fastest way to raise your score is to lower the balance on credit cards relative to the credit limit. If you have a card with a $5,000 limit and a $4,000 balance, paying it down to $1,500 can add 20 to 40 points. Paying off a collection account or a late payment does not erase it from your report, but it stops hurting your score as much once it is marked paid. Do not close old credit cards after you pay them down — closing them actually lowers your score because it reduces your total available credit.
Check your credit report for errors before you explore for a mortgage. You can get a free copy from annualcreditreport.com. If you see a late payment that was not yours, or a debt you already paid, dispute it with the credit bureau. Corrections can take 30 days but sometimes raise your score 10 to 20 points.
Get pre-approved by at least three lenders
A pre-approval is not the same as a rate quote. A quote is an estimate based on information you give over the phone. A pre-approval is a lender's written commitment that they will lend you a specific amount at a specific rate, based on documents they have reviewed. Pre-approvals are free and take 24 to 48 hours. You need a pre-approval to make an offer on a house anyway, so you might as well use the process to shop for the best rate.
Contact at least three lenders: a national bank (like Chase or Bank of America), a regional bank or credit union, and a mortgage broker. Each one will ask for your income, assets, debts, and employment history. They will pull your credit report. Then they will send you a Loan Estimate — a standardized form that shows the interest rate, the annual percentage rate (APR), the monthly payment, and all the fees you will pay at closing.
Compare the APR, not the interest rate. The APR includes the interest rate plus fees and points, so it is a truer picture of what you will actually pay. A lender offering 6.5 percent interest with $3,000 in fees may have a higher APR than a lender offering 6.7 percent with $500 in fees. The Loan Estimate shows both numbers side by side.
Understand points and when they make sense
A point is 1 percent of the loan amount. On a $300,000 loan, one point costs $3,000. Paying points at closing lowers your interest rate — typically by 0.25 percentage points per point. So if your rate is 6.5 percent and you pay one point, your rate drops to 6.25 percent.
Points only make sense if you plan to stay in the house long enough to recoup what you paid. If one point costs $3,000 and saves you $50 per month, you break even after 60 months (five years). If you think you might sell or refinance before five years, do not pay points. If you plan to stay 10 years or longer, paying one point is usually worth it.
Some lenders offer a no-point option where you pay a slightly higher rate but no upfront cost. This is useful if you do not have cash for closing costs or if you are uncertain how long you will stay.
Lock your rate at the right time
A rate lock is a lender's promise to hold your rate steady for a set number of days, usually 30, 45, or 60 days. You pay a small fee to lock — typically $300 to $500, though some lenders include it in the loan. If rates drop after you lock, you are stuck at the higher rate. If rates rise, you are protected.
Lock your rate when you are within 45 to 60 days of your closing date. Locking too early (more than 60 days out) costs money if rates fall, because you may have to pay a fee to extend the lock or accept a higher rate. Locking too late (fewer than 30 days before closing) leaves you exposed if rates jump in the final weeks.
If rates drop significantly after you lock, some lenders offer a one-time rate reduction or a float-down option. Ask about this before you lock. It usually costs $250 to $500 but can save you thousands if rates fall a full percentage point.
Shop for the best closing costs, not just the rate
Two lenders might offer the same interest rate but different closing costs. Closing costs include the origination fee (what the lender charges to process the loan), appraisal, title search, title insurance, homeowners insurance, property taxes, and HOA fees if applicable. These add up to 2 to 5 percent of the loan amount.
Ask each lender for a full Loan Estimate before you decide. The estimate breaks down every fee. Some lenders charge a flat origination fee; others charge a percentage of the loan. Some bundle services; others itemize them. A lender with a lower interest rate but higher origination fee might cost you more overall than a lender with a slightly higher rate but lower fees.
Negotiate closing costs with your lender. If one lender quotes $4,500 in fees and another quotes $3,500 for the same rate, the first lender may be willing to match or come close. Lenders compete on closing costs as much as on rates.
Consider a co-signer or co-borrower if your score is low
If your credit score is below 640 or your debt-to-income ratio is above 45 percent, adding a co-borrower (usually a spouse or parent) can help you get approved and get a better rate. A co-borrower is equally responsible for the loan and their income and credit count toward the decision. A co-signer is responsible only if you default; their income usually does not count, but their credit does.
A co-borrower with a score above 700 and stable income can lower your rate by 0.5 to 1 percentage point. The trade-off is that the co-borrower's debt counts against their own borrowing power, so they cannot take out a car loan or credit card without affecting your mortgage approval.
Frequently Asked Questions
Does shopping around for rates hurt my credit score?
Multiple hard inquiries within 14 to 45 days (depending on the credit bureau) count as a single inquiry for mortgage purposes. So getting pre-approved by three lenders in one week will lower your score by only 5 to 10 points, not 15 to 30. The impact fades within a few months.
What is the difference between a pre-approval and a pre-qualification?
A pre-qualification is an estimate based on what you tell a lender over the phone — no documents, no credit check. A pre-approval requires documents and a credit check and is a written commitment. Only a pre-approval counts when you make an offer on a house.
Can I negotiate my interest rate after I lock it?
No. Once you lock, the rate is set unless you pay a fee to float down (if the lender offers it) or you break the lock and start over with a different lender. Breaking a lock usually costs $500 to $1,000 in fees.
Should I pay off debt before I explore for a mortgage?
Paying off debt raises your credit score and lowers your debt-to-income ratio, both of which improve your rate. But do not close credit card accounts after you pay them off — closing them lowers your score. Keep the accounts open with a zero balance.
What if my rate quote changes between pre-approval and closing?
If you locked your rate, it should not change. If you did not lock, the lender can adjust it based on market movement. Always lock your rate in writing before you sign the purchase agreement, not after.