How to Get (Almost) 4% Interest on a Mortgage Right Now

How to get a lower rate on your mortgage

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Mortgage rates have risen significantly this year – average 30-year fixed rates have risen from around 3.5% at the start of 2021 to over 5.6% now, according to data from Bankrate – and the pros say that they will probably increase. This therefore makes it almost impossible to obtain a mortgage of around 4%. But, spoiler alert, for some people, that’s not the case. Here’s who could get one, and you can see the lowest mortgage rates you could qualify for here.

Look for an ARM, if that makes sense to you

If you want that 4% rate, the best thing to do in today’s mortgage environment, according to LendingTree senior economics analyst Jacob Channel, is to talk to a lender and see if you qualify for an ARM. “Some MRAs might be offered around 4%, at least during the introductory period. [But] borrowers may have to pay discount points to get down to 4%,” says Holden Lewis, real estate and mortgage expert at Nerdwallet.

That said, “ARMs can be risky, and in the long run, they may end up costing more than a fixed mortgage with a higher initial rate,” says Channel. This is because most ARMs have variable rates that initially start falling, usually for a period of 3 to 10 years, and then fluctuate, meaning they can go up, down or even stay the same – but in what direction they will go is never guaranteed.

ARMs tend to work best for short-term homeowners who only plan to stay in the same home for 5-7 years. They are also ideal for those who expect their income to increase since they are likely to refinance before the interest rate readjusts.

SSee the lowest mortgage rates you could qualify for here.

Explore a short-term mortgage

If you can afford a 15-year term, you might be able to get that coveted 4% rate, the pros say. Average fixed rates for 15-year mortgages are around 5%, but remember that’s only average, so you can get lower rates if you have great credit , good financial statements and/or if you buy discount points.

Although less common, there are also 10-year mortgages, which give homeowners the option to pay off their loans sooner. These shorter terms often have lower interest rates than 30-year fixed rate mortgages, and homeowners get the benefit of building up capital faster.

Buy discount points

Basically, rebate points are fees paid to reduce an interest rate. “It’s actually prepaid interest. When you pay discount points, you give the lender a portion of the interest payments up front in exchange for paying less interest each month,” says Lewis.

The general rule for discount points is that one point lowers the interest rate by approximately 0.25%. “Each offer is unique, so it may take more or less than two discount points to reduce the rate by 0.5%,” says Lewis.

However, there may be limits to the number of Discount Points you can purchase. Today, many lenders offer 30-year fixed rate mortgages around 5.5%. “Theoretically, it would take six discount points to lower the rate of a fixed-rate mortgage from 5.5% to 4%. That would be a $24,000 fee on a $400,000 loan assuming the lender took out a loan with that many discount points,” Lewis says. But the reality is that a lender may be reluctant to do so due to caps on total points and fees for a loan.

SSee the lowest mortgage rates you could qualify for here.

The break-even point for buying a discount point depends on the size of your loan, the interest rate and the term of the loan. If you are going to live in the house for many years, it may be a good idea to buy discount points.

Have the right combination of attributes

Outside of getting an ARM, to get a really low rate you’ll probably need a mix of attributes. These can include a credit score of 760 or higher, enough money to put 20% or more towards a down payment, the ability to buy three or four mortgage discount points, and afford a shorter term mortgage. , says Channel.

Compare the prices

The most important thing to do before getting a mortgage, according to Robert Heck, vice president of mortgages at digital mortgage marketplace Morty, is to shop around and explore your options, both in terms of higher rates low and all available loan programs. “Shopping is something a lot of shoppers don’t seek out, often for lack of time,” says Heck. Go online to compare a range of mortgages on their rates, terms and down payment options.

Even if you do all of these things, it can be difficult to get a 4% mortgage. Indeed, say the pros, you may also need a little luck. “With mortgage rates already so much higher than they were at the start of the year and continuing to climb, the sad reality is that locking in a rate below 4% is likely to be something most borrowers don’t. won’t be able to do,” says Canal.

And remember, even if you can’t get that coveted 4% rate, that doesn’t mean you can’t buy a home. “Accepting a higher rate on a fixed mortgage can often be better than spending all your money on discount points or looking for a riskier type of loan like an ARM,” says Channel.

Stephen V. Lee