Thursday, September 29, 2022

    Today’s mortgage and refinance rates: July 31, 2022 | Rates trend down

    Today’s mortgage and refinance rates: July 31, 2022 | Rates trend down

    Updated

    2022-09-01T20:51:42Z


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    The average interest rate for the most popular 30-year fixed mortgage is 5.48%, according to data from S&P Global.

    Mortgage interest rates are always changing, and there are a lot of factors that can sway your interest rate. While some of them are personal factors you have control over, and some aren’t, it’s important to know what your interest rate could look like as you start the process of getting a home loan. 

    What are today’s mortgage rates?

    Although mortgage rates fluctuate daily, 2020 and 2021 were years of record lows for mortgage and refinance rates across the US.

    While low average mortgage and refinance rates are a promising sign for a more affordable loan, remember that they’re never a guarantee of the rate a lender will offer you. Mortgage rates vary by borrower, based on factors like your credit, loan type, and down payment. To get the best rate for you, you’ll want to gather rates from multiple lenders.

    Average mortgage interest rate by type

    There are several different types of mortgages available, and they generally differ by the loan’s length in years, and whether the interest rate is fixed or adjustable. There are three main types:

    • 30-year fixed rate mortgage: The most popular type of mortgage, this home loan makes for low monthly payments by spreading the amount over 30 years. 
    • 15-year fixed rate mortgage: Interest rates and payments won’t change on this type of loan, but it has higher monthly payments since payments are spread over 15 years. 
    • 5/1-year adjustable rate mortgage: Also called a 5/1 ARM, this mortgage has fixed rates for five years, then has an adjustable rate after that.

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    Here’s how these three types of mortgage interest rates stack up:

    Learn more and get offers from multiple lenders »

    Average mortgage interest rate by credit score

    National rates aren’t the only thing that can sway your mortgage rates — personal information like your credit history also can affect the price you’ll pay to borrow. 

    Your credit score is a number calculated based on your borrowing, credit use, and repayment history, and the score you receive between 300 and 850 acts like a grade point average for how you use credit. You can check your credit score online for free. The higher your score is, the less you’ll pay to borrow money. Generally, 620 is the minimum credit score needed to buy a house, with some exceptions for government-backed loans.

    Data from credit scoring company FICO shows that the lower your credit score, the more you’ll pay for credit. Here’s the average interest rate by credit level for a 30-year fixed-rate mortgage of $300,000:

    Check your rates now and get offers from refinance lenders »

    According to FICO, only people with credit scores above 660 will truly see interest rates around the national average.  

    Average mortgage interest rate by year

    Mortgage rates are constantly in flux, largely affected by what’s happening in the greater economy. Generally, mortgage interest rates move independently and in advance of the federal funds rate, or the amount banks pay to borrow. Things like inflation, the bond market, and the overall housing market conditions can affect the rate you’ll see. 

    Here’s how the average mortgage interest rate has changed over time, according to data from Freddie Mac.

    Throughout 2020, the average mortgage rate fell drastically due to the economic impact of the coronavirus crisis. Rates throughout 2020 and into 2021 were lower than rates at the depths of the Great Recession. Thirty-year fixed mortgage interest rates hit a low of 2.65% in January 2021, according to Freddie Mac.

    Average mortgage interest rate by state

    The state where you’re buying your home could influence your interest rate. Here’s the average interest rate by loan type in each state according to data from S&P Global

    What to know before getting a mortgage

    A mortgage is a type of secured loan used to purchase a home. You pay back the lender over an agreed-upon amount of time, including an additional interest payment, which you can consider the price of borrowing money. 

    Because a mortgage is a secured loan, it means you put your property up as collateral. Should you fail to make your payments over time, the lender can foreclose on, or repossess, your property. Learn more about how a mortgage works here.

    How much you can borrow for a mortgage depends on the limits for the type of loan you’re getting, your lender’s limits, and your financial situation: your credit, your income, and the amount of cash you have available for a down payment. For a conforming mortgage (the type most people get, backed by the government-sponsored enterprises Fannie Mae or Freddie Mac instead of a government agency), a 20% down payment allows you to avoid paying mortgage insurance. On a $400,000 home, a 20% down payment would mean you need $80,000 up front. You can potentially get a conforming mortgage with a down payment as low as 3%. 

    Note that this calculation may be different if you qualify for a different type of mortgage like an FHA or VA loan, which require down payments of at least 3.5%, or if you’re looking for a “jumbo loan” over $647,200 in most parts of the US in 2022 (excepting Alaska, Hawaii, Guam, and the US Virgin Islands).

    You don’t have to go with the first bank to offer you a mortgage. Like anything else, different servicers offer different fees, closing costs, and products, so you’ll want to get a few estimates before deciding where to get your mortgage.

    A mortgage rate, also known as an interest rate, is the fee charged by your lender for loaning you money. Your principal (payments on the amount of money you borrowed) and interest are rolled into one payment each month.

    The mortgage APR is the interest rate plus the costs of things like discount points and fees. This number is higher than the interest rate and is a more accurate representation of what you’ll actually pay on your mortgage annually.

    Why is it important to understand the difference between the interest rate and APR? When you’re shopping around for lenders, you may find that one charges a lower interest rate, so you think that company is the obvious choice. But you might actually find out the APR is higher than what you can get with another lender because it charges hefty fees. In reality, it might not be the best deal.

    In general, you can consider a good mortgage rate to be the average rate in your state or below. This will vary depending on your credit score — better scores tend to get better mortgage rates. Overall, a good mortgage rate will vary from person to person, depending on their financial situation. In 2020, the US saw record-low mortgage rates across the board that continued into 2021. But rates have increased significantly since then.

    A discount point is a fee you can choose to pay at closing for a lower interest rate on your mortgage. One discount point usually costs 1% of your mortgage, and it reduces your rate by 0.25%. So if your rate on a $200,000 mortgage is 3.5% and you pay $4,000 for two discount points, your new interest rate is 3%.

    To get a mortgage, you need to start by getting your finances in order. Having a strong financial profile will a) increase your chances of being approved for a loan, and b) help you score a lower interest rate. Here are some steps you can take to beef up your finances:

    • Figure out how much home you can affordThe general rule of thumb is that your monthly home expenses should be 28% or less of your gross monthly income.
    • Find out what credit score you needEach type of mortgage requires a different credit score, and requirements can vary by lender. You’ll probably need a score of at least 620 for a conventional mortgage. You can increase your score by making payments on time, paying down debt, and letting your credit age.
    • Save for a down payment. Depending on which type of mortgage you get, you may need as much as 20% for a down payment. Putting down even more could land you a better interest rate.
    • Check your debt-to-income ratio. Your DTI ratio is the amount you pay toward debts each month, divided by your gross monthly income. Many lenders want to see a DTI ratio of 36% or less, but it depends on which type of mortgage you get. To lower your ratio, pay down debt or consider ways to increase your income.

    Then, it’s time to shop around and get quotes from multiple lenders before deciding which one to use. 

    Because mortgage rates are so individual to the borrower, the best way to find the rates available to you is to get quotes from multiple lenders. If you’re early in the homebuying process, apply for prequalification and/or preapproval with several lenders to compare and contrast what they’re offering.

    If you want a broader idea without yet talking to lenders directly, you can use the tool below to get a general sense of the rates that might be available to you.

    Liz Knueven

    Personal Finance Reporter

    Liz was a reporter at Insider, primarily covering personal-finance topics. 
    Before joining Insider, she wrote about financial and automotive topics as a freelancer for brands like LendingTree and Credit Karma. 
    She earned her bachelor’s degree in writing from The Savannah College of Art and Design. She lives and works in Cincinnati, Ohio. Find her on Twitter at @lizknueven.


    Laura Grace Tarpley, CEPF

    Personal Finance Reviews Editor

    Laura Grace Tarpley (she/her) is a personal finance reviews editor at Insider. She edits articles about mortgage rates, refinance rates, lenders, bank accounts, wealth building, and borrowing and savings tips for Personal Finance Insider. She is also a Certified Educator in Personal Finance (CEPF).
    She has written about personal finance for six years. Before joining the Insider team, she was a freelance finance writer for companies like SoFi and The Penny Hoarder, as well as an editor at FluentU. You can reach Laura Grace at ltarpley@insider.com.
    See below for some of her work.
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