How to Find Average Mortgage Rates
Whether looking for a home loan for a purchase or a refinance, one of the first concerns borrowers have is getting a good interest rate on their mortgage. After all, saving even a quarter of a point could add up to a substantial amount of money over the life of a 30-year loan.
But mortgage rates vary depending on a variety of factors, from the borrower’s financial situation and credit score to the type of loan and value of the property. The best rate possible might not be the best rate possible for your situation. To determine whether you’re getting a good deal on your loan, it’s useful to understand some basics about mortgage interest rates.
How are mortgage rates set?
Contrary to popular belief, the Federal Reserve’s periodic announcements about the effective federal funds rate (EFFR) — the short-term interest rate at which financial institutions loan money to each other — doesn’t have a direct impact on mortgage interest rates. This rate may affect some consumer debt, such as credit cards and personal loans, affecting the cost of borrowing.
However, the Federal Reserve’s monetary policies can have an impact on mortgage interest rates, said Tendayi Kapfidze, chief economist for LendingTree. One of the primary ways is through its treatment of mortgage-backed securities (MBSs), which are bonds secured by residential and other real estate loans.
These bonds are essentially pools of loans that are guaranteed by government-sponsored enterprises, such as Fannie Mae or Freddie Mac and are also sold to one of these entities or to a securities firm, according to the Financial Industry Regulatory Authority (FINRA). This secondary market gives banks the liquidity they need to make more loans.
Historic moments in mortgage rates
During the financial crisis of 2007-2008, the Federal Reserve began purchasing more MBSs and Treasury notes as a means of lowering interest rates and increasing the money supply. Now, due to the strengthening economy, the Fed plans to reduce its holdings. “They’re letting some of their [quantitative easing] roll off,” Kapfidze said. “They’re letting some of those mature and they’re reducing the size of their balance sheet.”
Mortgage rates and the 10-year Treasury note are highly correlated right now, he added, with a spread of 150 basis points between the 10-year Treasury and mortgage rates. Returns on the 10-year Treasury note increased upon economic optimism after Donald Trump was elected president in November 2016, said Jerry Robinson, broker/owner of 1st Choice Mortgage Company, LLC in Meridian, Idaho. Mortgage interest rates rose as well, Kapfidze said.
The yield is essentially the rate at which the market will lend money to the government in the form of a 10-year bond, said Andrew S. Weinberg, principal of Silver Fin Capital Group, LLC, a mortgage company in Great Neck, N.Y. He offers an example: If the 10-year Treasury yield — with its guaranteed return — is 2.84% and you get a mortgage quote at 4.5%, the difference between the two is the premium that the market is asking for lending to you instead of the government, with its guaranteed return. “And that premium can sometimes change over time, maybe investors want a bigger reward for the risk they’re taking,” he said.
Robinson said it’s important to remember that today’s rates are still near historic lows — and a far cry from where they were in 1982, when the average interest rate was more than 16%. He said he knows people “who can remember when rates were in the 16s and they dropped to the 15s and everyone was ecstatic,” he said. “I was looking at a rate today for somebody, and we’re at a 4.625 [percent] and they’re like, ‘Wow, that’s pretty high.’ And I think to myself, ‘Really?’”
Mortgage rate future outlook
Kapfidze expects rates to remain relatively steady through the end of the year. However, if a trade war or other circumstances weakens the economy that could change. In addition, long-term shifts in monetary policy may affect rates.
Robinson said bad inflation news could also raise rates. Bonds “hate inflation, absolutely hate inflation,” he said. He predicts that, as more inflation indicators emerge from various government agencies, rates will tick up.
Nearly every client whom Robinson meets wants to know how mortgage rates will trend in the future. His reply is always the same: He can tell you what rates are today. He can offer a guess at where they’ll be tomorrow. “But, by day three, I have no idea, because we don’t know what the world entails, and because we’re all one community in the world, rates are based off of lots of economic data and geopolitical [factors],” he said.
How to find what your mortgage rate would be
Those monetary policies affect your loan in a big-picture way. However, your loan cost is also affected by a variety of personal factors, including:
- Your credit score
- Property location
- Loan-to-value ratio
- Loan term and type
For example, if you have a great credit score and history, and purchase a home using a significant down payment, you may get a better rate. If you prepay interest in the form of discount points, you may be able to lower it even more. So, be sure to speak with multiple lenders to find the programs and requirements that will get your best possible rate.
Know your credit score
Your credit score will have a direct impact on your loan price. So, it’s important to check out your report and make sure it’s as clean as it can be before you start shopping. In fact, many reports have errors or outdated items. The Consumer Financial Protection Bureau’s (CFPB’s) 2017 annual consumer response report revealed that it received more complaints about credit reporting than any other financial product or service that year.
You are entitled to one free copy of your credit report every 12 months from each of the “big three” credit reporting agencies — Experian, Equifax and TransUnion. You can order your report online from Annualcreditreport.com or by calling 1-877-322-8228. Once you get your reports, look them over to ensure that there are no errors and that they’re free of any negative data that should have been removed because of its age or inaccuracies. It’s important to check out all three copies of your report because negative information on one may not be on all three.
Typically, a FICO score of 800 to 850 is “excellent,” while a 740 to 799 is “very good,” and a 670 to 739 is “good.” Cleaning up your credit report and improving your score may save you money.
Research average loan prices
Lenders typically advertise the lowest rates for those with the best credit scores. However, there are some good resources to give you an overview of the scope of rates. LendingTree allows you to compare offers from various lenders to find the best one for you. In addition, LendingTree’s Mortgage Rate Competition Index is a weekly report of the spread between the lowest and highest APRs offered by lenders in its marketplace.
Freddie Mac also publishes a weekly report of the average rates of various types of mortgages. And the CFPB’s Explore Interest Rates tool lets you plug in different numbers to see how your credit score, home price, down payment amount and loan type can affect your interest rate.
Comparison shop offers from multiple lenders
It’s important to remember that average rates are just that — averages, Kapfidze said. “If the average rate is — I think right now we’re around like 4.5% — there’s people in the market getting rates at 4% and other people are getting rates at like 5.5%, even 6%,” he said. He added that speaking to multiple lenders helps you get your best deal.
“I always recommend shopping around,” Robinson said. He said a mortgage broker may have access to multiple lenders and programs to help you get the best rate for your situation. Providing basic financial information and giving the broker access to your credit report lets them give you a good idea of the rates you can expect. However, try to do your outreach to various lenders on the same day, as rates may change day to day. Looking at an estimate you got from one lender on Tuesday and another lender on Friday might not be comparing apples to apples, he said.
And it’s also important to note that while having a prospective lender access your credit report may have a small, negative impact on your score, that effect isn’t cumulative when you shop with multiple lenders. The CFPB said you have a 45-day window in which additional inquiries from mortgage lenders will not adversely impact your score, which allows you to shop for your best interest rate.
Getting your best mortgage interest rate is a highly personalized process that depends on a variety of big-picture financial data, your financial situation and purchase or refinance details. Comparison shopping around may result in significant savings on your loan.