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If you are in the market to purchase a new home or your first home, the current mortgage rates are the first thing to consider when looking to finance. Comparing mortgage rates can save you thousands of dollars in the long run. Below, we have broken down and compared your current mortgage rates.
What is a mortgage?
A mortgage is defined as a legal agreement by which a bank lends money at interest in exchange for taking the title for the debtor’s property, with the condition that the conveyance or property of title becomes void upon the repayment of the debt.
Most people cannot afford to buy a house or property in full, in cash. This is where a mortgage becomes necessary. Mortgages can be used to purchase homes, land, or other types of real estate without paying the entire price upfront.
While you’ll typically be expected to cover the down payment, a mortgage will cover the bulk of your home price and allow you to pay it back over an extended time.
Usually, a down payment amount ranges between 3% to 25%, and a mortgage will take care of the rest. For first-time home buyers, remember that the price of a house should include the closing costs attached to the process. A mortgage loan granted from an institution is expected to be repaid with interest over a specific period of time. A mortgage is considered a “secured loan” in which the property is used as collateral to secure the loan.
The most common mortgage terms are 30 years and 15 years. Payments are made monthly for the term, and include principal, interest, property tax, and mortgage insurance payments.
Additionally, you can get a conventional or non-conforming mortgage (including jumbo loans and government-insured loans).
How do mortgage rates work?
Individuals and businesses use mortgages to purchase property and real estate without paying the entire home price upfront. The borrower must repay the loan plus interest over an agreed period until they fully own the property. These monthly mortgage payments usually come from an annual percentage rate, taken from the price of the house over and spanning the life of the loan.
One type of mortgage is a fixed-rate loan, which tends to trade higher interest rates for a set payment for the loan term. This could be a 15-year fixed-rate, a 30-year fixed-rate mortgage, or another duration. Mortgage interest rates tend to be lower the shorter the term, meaning a 15-year mortgage will have a lower average rate for homeowners than a longer term.
Another type of mortgage is an adjustable-rate mortgage, where the interest fluctuates. Homeowners in different situations with different loan amounts will find various specific perks. For example, a single-family home may want the stability of a rate lock with fixed-rate mortgages; however, homeowners with higher risk tolerance may bet against the housing market rate trends and benefit from adjustable-rate mortgages throughout homeownership.
The lender will give you a specific mortgage rate quote during the mortgage application. A mortgage rate is the rate of interest charged on the mortgage. Mortgage rates are determined by the lender and can be either fixed, which means it stays the same for the entire term of the mortgage, or variable, which means that the rate can fluctuate with benchmark interest rates.
Mortgage rates can rise and fall with interest rate cycles, drastically affecting the homebuyer’s market.
As a borrower, you are almost entirely out of control regarding mortgage rates. Lenders will typically have a base rate, then adjust that base rate up or down for individual borrowers depending on the risk involved. Usually, after an application review, a lender will determine if you are a safe candidate for their mortgage and will give an interest rate based on that information.
Factors that go into a mortgage rate
There are a few factors that you have control over when it comes to determining mortgage rates. These include:
- Credit score: Mortgage lenders will run a credit report to evaluate risk. Higher credit scores are safer, so a lender will feel more confident lending you a big lump sum of money if you have good-to-excellent credit.
- Down payment: Paying a more significant percentage of the home upfront reduces the overall amount you are borrowing, making you seem less risky to lenders. You can utilize a loan-to-value (LTV) calculator to evaluate this yourself beforehand. An LTV of 80% or higher is considered a higher risk.
- Loan type: The loan you are applying for can influence the mortgage rate offered. For example, a 30-year fixed loan rate differs from a VA loan rate or a 15-year fixed rate.
- Usage of the home: Mortgages are typically for primary residences. Lenders are more willing to loan you money if they know you will live in the house. This will more than likely keep you at a lower rate than a property used for income, a vacation home, or a second property.
Other factors go into determining mortgage rates that are entirely out of your control. These include:
- The U.S. economy: This typically means what is happening on Wall Street. Elections can also influence the economy, along with inflation and unemployment rates.
- The global economy: What is happening worldwide will affect the U.S. economy. World detriments can lower interest rates, while positive impacts can raise interest rates.
- The federal reserve: The federal reserve is the National bank that attempts to guide the economy by encouraging job growth and keeping inflation under control. The federal reserve can ultimately set the benchmarks for mortgage rates, which in turn can cause lenders to raise or cut mortgage rates.
Comparing today’s mortgage rates
As we are nearing the end of August 2022, the current benchmark mortgage and refinancing rates on a 30- year fixed mortgage hovers at 5.94%, an FHA (Federal Housing Administration) 30-year fixed loan is 5.72%, a Jumbo 30-year fixed loan is 5.15%, and a 15-year fixed loan is 5.21%. These rates are what buyers should expect to be quoted before considering their qualifications.
Due to economic fluctuations, mortgage rates can rise and fall daily, so comparing rates before signing on a home loan is crucial. This table compares current fixed mortgage rates today:
| Loan Types | Purchase | Refinance |
|---|---|---|
| 30-year fixed | 5.94% | 6.29% |
| FHA loans 30-year fixed | 5.72% | 6.09% |
| VA 30-year fixed | 5.84% | 6.29% |
| Jumbo 30-year fixed | 5.15% | 5.15% |
| 20-year fixed | 5.69% | 6.09% |
| 15-year fixed | 5.21% | 5.46% |
| Jumbo 15-year fixed | 5.15% | 5.16% |
| 10-year fixed | 5.15% | 6.41% |
As these numbers are general rates, each lender will have their mortgage rates depending on certain factors. As we have mentioned, shopping around for the best mortgage rates is essential before settling with one lender.
How to shop for mortgage rates
When shopping around for the best mortgage rate, there are a few things to consider:
- Make sure to shop through national and local lenders to compare.
- Avoid applying for mortgages with multiple lenders, as that can harm your credit score. It may be best to pull your credit score and use that to share with lenders. Ask them to estimate the best rates based on those numbers. This way, you preserve your credit score while getting the best possible rate quotes.
- Do some of your research and check out a rate table to help you identify if you are getting the most competitive rates from the lender.
Top rated mortgage lenders today
Quicken Loans
30-year fixed: 5.875% to 6.18%
FHA 30-year fixed: 5.625% to 6.079%
30-year jumbo fixed: 5.5% to 5.665%
Better
30-year fixed: 6.125% to 6.145%
15-year fixed: 5.375% to 5.409%
10-year jumbo fixed: 5.0% to 5.129%
The bottom line
Whether you are in the market for a new home or your first home, it is essential to compare the current mortgage rates and shop for the right lender. While doing this, you must do all you can to raise your credit score as high as possible, put down a sizable downpayment, and consider different loan types to get the best rate.
In today’s economy, rates fluctuate daily and have risen tremendously over this year alone. Make sure to educate yourself as best as you can on what affects the current mortgage and refinance rates to determine if it is the best time to make a purchase.
For more information on how to make financially savvy decisions, check us out at Entrepreneur.com.
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