Navigating the Current Mortgage Rate Landscape: Locking in the Best Deals

Mortgage interest rates are a key component of the loan process, and they influence how much home buyers can afford.

Currently, we are experiencing higher rates in the aftermath of record-low rates during the coronavirus pandemic.

What's in this article?

What factors influence mortgage rates?
How mortgage rates affect affordability
Current mortgage rate trends
How to navigate the current mortgage rate landscape
Get Committed® with Compass Mortgage

Higher interest rates and home prices make it difficult for many borrowers to afford a home. Fortunately, mortgage lenders such as Compass Mortgage are offering creative solutions to help match borrowers to the right loan and make mortgages affordable.

In this article, we’ll explore the factors influencing the current mortgage interest rates, and how you can find the best rate for your loan.

What factors influence mortgage rates?

When a borrower purchases a home using a mortgage loan, they must pay back the principal amount borrowed as well as interest on the remaining unpaid amount.

Interest rates are expressed as a percentage and are unique to the borrower based on numerous personal and economic factors.

Factors that influence your mortgage rate include:

  • Type of loan and loan term length
  • Loan amount
  • Down payment amount
  • Borrower’s credit history and credit score
  • Economic factors, such as inflation and employment rates
  • Federal Reserve policies
  • Housing market conditions

While economic factors and Federal Reserve policies are out of the borrower’s control, there are many factors in this list that you can control.

Taking control of your role in the mortgage process can help you earn a better rate.

Fixed-rate vs. adjustable-rate mortgages

Two common types of mortgages are fixed-rate or adjustable-rate mortgage loans. 

A fixed-rate mortgage retains the same interest rate over the life of the loan, while an adjustable-rate mortgage (ARM) has a short fixed-rate period and then fluctuates based on conditions in the financial markets.

The rate available through an ARM can be a helpful solution for some borrowers in today’s rate landscape because this type of mortgage offers a lower initial rate for a set period before fluctuating based on a specific benchmark rate.

Your lender will help you determine the right option for you based on your unique borrowing needs.

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How mortgage rates affect affordability

Take a look at the following mortgage payment comparison chart for a $400,000 home with a 20% down payment of $80,000.

Interest rate (fixed, 30 years)Monthly principal & interest payment

A mortgage rate increase can influence whether a hopeful homebuyer is able to qualify for a loan and comfortably repay it while still meeting other financial obligations.

Understanding the current mortgage rate trends as well as the factors within your control will help you get the rate you need.

In 2020 and 2021, the average 30-year mortgage rate was around 3%.

Based on our previous example, a 3% rate would drop the monthly principal and interest payment down to $1,349.

But by the end of August 2023, 30-year rates were averaging 7.5%. So, what happened?

The 2020 and 2021 rates were driven down by economic uncertainty during the COVID-19 pandemic and Federal Reserve rate cuts that aimed to lower borrowing costs for consumers.

As economies recovered, inflation rose, housing demand surged and home prices skyrocketed. These factors contributed to the current interest rate environment.

Historically speaking, however, rates remain favorable. For example, in 1982 mortgage interest rates averaged 16%; and in 2006, rates averaged 6.4%.

The difference today is that high home prices and inflation are making it more difficult to achieve homeownership.

Fortunately, lenders such as Compass Mortgage are working hard to offer creative solutions to borrowers that make homeownership possible and affordable.

How to navigate the current mortgage rate landscape

The housing market’s cycles can certainly impact a borrower’s ability to afford a home, but there are several contributing factors to the homebuying process.

The right time to buy a home or refinance can only be made by the borrower, not external factors influencing the decision.

Let’s take a look at what you can do to take control of your homebuying scenario and successfully navigate the current mortgage rate landscape.

Get your finances in check

To get the best mortgage rate for you, you have to start with the factors within your control: your credit score and down payment amount.

Improve your credit score with the following actions:

  • Pay all your bills on time—always
  • Lower your credit card balances
  • Avoid opening new credit accounts prior to applying for a mortgage
  • Check your credit report for errors

These steps will help you boost your credit score in the following months. In general, a higher score will help you earn a more favorable interest rate.

Additionally, saving for a significant down payment will also help your interest rate because it will lower your overall loan amount.

While a conventional loan allows down payment amounts as low as 3% and FHA loans as low as 3.5% (both dependent on your credit score), a higher down payment amount has many benefits for borrowers.

Increasing your income or decreasing your monthly expenses will allow you to build your savings up to your desired amount. 

Use online tools

Online mortgage payment calculators and comparison calculators help you get an idea of what you can expect to pay every month.

Most calculators allow you to define your loan terms, loan amount, interest rate and down payment amount so you can estimate your monthly principal and interest payments per month.

Some also will help you estimate your property taxes and insurance.

Get pre-approved

Mortgage pre-approval offers borrowers a look at their loan options, interest rates and how expensive of a home they can afford.

Pre-approval with Compass Mortgage is simple and does not affect your credit score.

By supplying basic information about the property you want to purchase and your finances, we can offer you personalized insights and guidance.

Lock in your rate

Compass Mortgage’s Get Committed® program allows you to lock in your interest rate so you don’t miss out on the home that’s right for you. 

In addition to locking the interest rate, Get Committed® provides you with a fully underwritten loan commitment that is far superior to standard pre-approval.

Locking in your rate protects you during periods of fluctuating rates and market inconsistencies.

Get Committed® with Compass Mortgage

In a higher-rate environment, you need options to make your home as affordable as possible.

Compass Mortgage offers the following solutions to borrowers to help you get the best deal:

  • 2-1 buydown for a lower rate in the first two years of homeownership
  • ARM loans for a lower initial rate over a set period of time
  • Get Committed®  to lock in your rate and provide a fully underwritten loan commitment

A loan commitment essentially has the power of a cash offer. It shows the seller that you’re fully approved financially and your deal isn’t likely to fall through. 

Get Committed® allows borrowers to start the loan process, make a competitive offer and close on their ideal home. 

Apply with Compass Mortgage now to get started. 

We look forward to helping you find the most affordable loan for your home.

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