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How to find an ultra-low mortgage rate, even as rates rise now

Doug Whiteman
·5 mins read
How to find an ultra-low mortgage rate, even as rates rise now
How to find an ultra-low mortgage rate, even as rates rise now

After plummeting for months, from one record low to another, mortgage rates are starting to climb as many lenders pass along a new fee being implemented this fall.

The 0.5% surcharge — which technically applies only to U.S. refinance loans, though lenders have been hiking rates across the board — is "the single biggest consideration for mortgage rate movement right now," says Matthew Graham, chief operating officer of Mortgage News Daily.

His site's daily survey of lenders shows the average for a 30-year fixed-rate mortgage soared from 2.87% on Sept. 11 to 3.06% just 10 days later.

But by the end of the past week, the average had backpedaled to 3.00%.

Super-cheap rates are still out there, if you're willing to hunt around hard enough for one. Lenders are continuing to offer 30-year fixed-rate mortgages at 2.50%.

How can you score an ultra-low mortgage rate before more lenders account for the new fee? Industry experts offer these four pieces of advice.

1. You'll have to show a healthy credit score

Excellent credit score with young businesswoman in a thoughtful face
TierneyMJ / Shutterstock

"To get a low rate, the borrower will need to have excellent credit," says Richard Pisnoy, a principal with Silver Fin Capital, a mortgage broker in Great Neck, New York.

This is even truer than it used to be. Banks have been tightening their lending standards, because they don't want to be left with defaults resulting from the COVID-19 economic crisis.

For example, in the spring JPMorgan Chase started requiring new mortgage applicants to have a minimum credit score of 700 — in the middle of the "good" range — and make at least a 20% down payment.

Consumers may not like the new rules, "but they speak to the uncertainty of the times and the difficulty for these organizations to gauge borrowers' ability to repay at a time when millions of people are suddenly out of work," says Matthew Speakman, an economist with Zillow.

The best mortgage rates have traditionally gone to borrowers with credit scores that are "exceptional" (800 to 850) or "very good (740 to 799). If you're not sure what your credit score is, you can take a peek at it for free.

2. Shopping around is key

In some cities, different lenders can offer rates that vary by close to 1 full percentage point, a study by LendingTree found earlier this year.

So, don't ever stop searching after you receive one rate quote. Homebuyers who say yes to the very first mortgage offer end up paying an average of around $37,500 more in total interest over the course of a 30-year loan than buyers who gather rates from multiple lenders, LendingTree said.

The differences from one lender to another may be even greater now, as some roll the new refinance fee into their rates and others don't.

United Wholesale Mortgage — America's second-largest mortgage lender after Quicken Loans — has resisted, and is still promoting 30-year rates as low as 2.50%, and it's not difficult to find other lenders advertising similar rates.

It's essential to shop around for a low mortgage rate, same as you might shop around to find a good deal on homeowners insurance.

3. Be willing to pay 'points'

When you shop for your rate, consider paying "discount points," which are upfront fees equal to a percentage of your mortgage amount. Paying points reduces your mortgage rate.

Traditionally, one point has cost 1% of your loan amount and would lower your rate by one-quarter of 1 percentage point. For example, on a $200,000 refinance loan, you might pay $2,000 (that's 1% of $200,000) to cut your rate from 3.25% to 3%.

Recently, the strategy has become even more effective, Pisnoy says.

"It seems that paying points may be able to go a little further than it used to," he says. "Instead of lowering a rate by 0.25 of a percentage point when paying one point, maybe it will lower the rate even more."

When you pay points, you "buy down" your mortgage rate — which also will lower your monthly mortgage payment. But you'll need to stay in the house long enough to make the points worthwhile.

That means calculating your "break-even point": how long it will take you to pay off the points with the savings from the lower rate. If it's possible you'll move in a year or two, you probably won't come out ahead.

4. Be ready to move quickly

Full length shot of healthy young man running on the promenade. Male runner sprinting outdoors.
Jacob Lund / Shutterstock

Mortgage rates are unpredictable, and amazingly low ones can be here for just a hot minute.

"Even though rates are low (by historical standards), they still move every day," warns Pisnoy. So if you come across a rate that would give you an impressively low monthly payment, fill out the application and ask to lock the rate — so it won't slip away.

But if you lose out on a dreamy rate, experts say it's a mistake to sit around and wait for mortgage rates to go down again — especially now. Because of the refinance fee, "it’s unlikely that mortgage rates will revert to the long-term low levels anytime soon," says Zillow's Speakman.

So, the advice is similar to what dithering investors are told when they're tempted to wait based on what stocks might or might not do: Don't time the market.

If you're a homebuyer and find the perfect house — maybe through one of the virtual tours that have become popular in the coronavirus era — comparison shop for your mortgage and try to settle on one quickly. Don't miss out on a great home or a great loan.