Mortgage Rates Are Still Low, But the Market is Changing

Over the past several years, mortgage rates fell considerably, partly due to low federal interest rates and optimistic economic forecasts. In 2021, federal interest rates will probably stay low, but that’s not a certainty — and while the mortgage market is influenced by the federal government, low interest rates don’t always mean cheap mortgages.

Lenders look at a variety of economic indicators when deciding rates, and average APRs can change significantly from month to month. In the second week of February 2021, the average interest rate for a 30-year fixed mortgage was 2.98 percent in February 2021according to S&P Global. That’s low, but not as low as in some months in 2020.

The bottom line: If you’re thinking about buying a home or refinancing, you’ll need to act quickly to take advantage of the current market. You’ll also need to understand the factors that can affect your offers.

Mortgage lenders look at a variety of factors including:

• The size of the mortgage
• The amount of the down payment
• The borrower’s credit history and FICO credit score
• The borrower’s income and payment history
• Major negative marks (including bankruptcies)
• The borrower’s credit utilization

Mortgage companies may interpret these factors in wildly different ways, which could lead to significant differences in interest rates. The bottom line: To buy a home with the lowest possible interest rate, you’ll need to get rates from several different lenders.

The savings can be significant. According to one Freddie Mac study from 2018, the average borrower can save an average of $1,500 over the life of their mortgage by obtaining a single additional rate quote. Many borrowers take that approach — but just under half of all applicants use the first company they find.

Looking for Mortgage Quotes Online

Comparing quotes could save you thousands of dollars, and the more quotes you’re able to compare, the better your chances of locking in a great mortgage. That doesn’t mean submitting full applications to dozens of lenders; you can use online resources to get basic quotes from lending institutions, then narrow your search as you develop your understanding of the market.

When looking at quotes, keep these factors in mind:

• APR- This is the annual interest you’ll pay for the money you’re borrowing. APR is important, but it’s not the only number to consider; a loan with a low APR might have high closing costs or a variable rate. Still, APR is a primary consideration for buyers.
• Loan Type- Variable-rate mortgages can become more expensive (or, rarely, less expensive) over time. The interest rate tied to market indicators. Fixed-rate mortgages have the same interest rate over the life of the mortgage.
• Closing Costs- This is the amount you’ll pay to establish the mortgage. Closing costs vary from 2 to 5 percent of the total amount of the loan. Financial advisors recommend paying the closing costs upfront if possible rather than rolling them into the total value of the mortgage.
• Company Reputation- Choose a mortgage provider with great customer service and a strong reputation. You’ll likely need to communicate with your lender regularly over the course of your loan, so research carefully to find a company that values your business.

Lenders have some flexibility when offering mortgages. By collecting quotes, you may be able to negotiate, reducing your closing costs considerably.

To Find Affordable Mortgages, Cast a Wide Net

The right mortgage can save you considerably by reducing your total obligation. Whether you’re switching from a variable mortgage to a low fixed rate, refinancing to a shorter term, or buying a new home, your choice of lender will determine how long you’ll spend paying off your loan — in other words, it’s a major financial decision.

Take your time researching, paying attention to all of the costs of each loan. Evaluate mortgage companies responsibly, using online resources to collect as much information as possible. By looking at a variety of mortgage options, you can take advantage of low interest rates to improve your financial future.