What Is a Good Interest Rate on a Mortgage?

When it comes time to buy a new home, you’ll want to get the best possible interest rate for your mortgage loan. What makes a good interest rate and how do you know whether you’re getting the best one or not? What can you do to make sure you get a good interest rate? 

As you begin looking at homes, you’ll want to lock in an interest rate on a mortgage fast. It may seem intimidating, but it doesn’t have to be. We will give you plenty of information to learn all about interest rates and how to get the best one for you.

At Next Level Homes, we help people get into the homes of their dreams each and every day. We know how to get the best interest rates available to you. This guide will give you all the information you need to get a mortgage interest rate you are happy with. Keep reading for the best tips and advice to make getting a good interest rate on a mortgage simple.

What Is a Mortgage Interest Rate?

A mortgage interest rate is additional money paid on the money borrowed for your home, usually at a specific rate or percentage. Typically, mortgage lenders tell you the percentage of interest you’ll pay yearly for the life of your loan, and that interest is then divided up and paid by you monthly.

It’s generally best to get an interest rate that is fixed, or that will not change during the life of your loan. The other option is a variable interest rate that may change year to year. People typically prefer fixed rates because they know what their payment will be each month.

Understanding interest rates is important in order to not overspend on the life of your mortgage. Since interest entails additional money you’ll be paying to the bank, you’ll want to know how to get the best rate possible to pay the least amount of money.

How Do I Get a Good Interest Rate on a Mortgage?

There are several factors that go into getting a good interest rate. The important thing to remember is that interest rates change often, even daily. If someone you know locked in on a specific rate the same day you have, it doesn’t mean those two rates will be the same.

Mortgage lenders take into consideration a number of factors while calculating your interest rate. Here is a list of a few of these considerations:

• City and state in which you want to buy a home
• Yearly income
• How reliable your income is
• Current debts
• Credit score, including credit history
• Loan amount
• Length of the loan
• Down payment amount

As you can see with the list above, there are various reasons why mortgage interest rates can differ between borrowers, even if they secured their rates on the same day.

In order to get as good of an interest rate as possible, lenders recommend having a good credit history with a 760 credit score or higher, a 20 percent down payment or more, and a stable income with a low debt to income ratio. By following this advice, you can keep your interest rate lower and pay less in interest over the long run.

What Is the Average Interest Rate?

Now that you know interest rates change often, you may wonder if there’s an actual average interest rate. The average rate depends on a number of factors, like whether you want a 30-year loan or a 15-year loan. 15-year loans typically have lower rates than 30-year loans. 

The state in which you want to live will also play a role into the average. States like New York and Hawaii generally have higher mortgage interest rates, while Kansas, Arkansas, and Nebraska offer some of the lowest interest rates in the United States.
As of December 2021, these are the national averages for different types of mortgage loans

• 30-year fixed interest rate: 3.1 percent.
• 15-year fixed interest rate : 2.46 percent
• 5/1-year adjustable interest rate: 3.03 percent

A 5/1-year adjustable interest rate is a loan with a fixed rate for the first five years, then an adjustable rate after that. The benefit of a 5/1-year adjustable rate is to secure a lower rate for the first five years, with the goal of selling the home or property before the end of those five years.

Although these rates are an average, they do allow you to guess what your potential interest rate will be. Just remember, interest rates can change daily and depend on a number of factors, including your credit and financial history. It’s always best to keep an eye on these rates to make sure you secure a good one before they begin to climb.

What Is Considered a Good Interest Rate on a Mortgage?

When it comes to getting a good interest rate on a mortgage, more often than not, the lower the better. That’s because the smaller the interest percentage, the less money you will have to pay over the life of your loan.

For example, if you were to get a 30-year fixed loan of $200,000 for a home you recently purchased with an interest rate of 3.5 percent, you would pay over $120,000 in interest over the course of 30 years. That’s on top of the $200,000 for the loan itself. This is why the lower the rate the better for you and your wallet in the long run.

Now let’s take that same $200,000, 30-year fixed loan with a 3 percent interest rate. By having an interest rate lower by even half a percent, you’ll save over $20,000 in payments during those 30 years.

This is why you should always aim to get the lowest rate you possibly can. The lower the rate, the less interest you will pay over the life of your loan.

How Do I Get a Low Interest Rate?

To get a low interest rate, much of it will depend on timing and the market. Over 2020 and 2021, mortgage rates have been at an amazing low. It doesn’t mean they will always stay this low, though. 

This is where timing comes in. You and a lender can keep an eye on the market and attempt to lock in an interest rate at the right time. Since rates change daily, you’ll have to look at trends and act fast. This, of course, can be somewhat of a gamble. If you see a relatively low rate, yet decide to hold off for a lower one in the coming days, there is a chance they could increase instead.

You can also shop around for a lender with the lowest rates. Not all lenders offer the same interest rates. There are many different lenders out there with varying rates you can look into. Just because you get a quote from one lender, doesn’t mean you can’t get a quote from another. Be mindful of gathering too many quotes, though. Lenders will run credit inquiries to help you find interest rates, and too many inquiries can negatively affect your credit score.

The last thing you can do to assure you get as low of an interest rate as possible is to be in a good financial standing. Maintain a credit score of 760 or higher. Have at least a 20% down payment for the home you want to buy. And make sure your income to debt ratio is as low as possible. 

By following these steps, you can get an interest rate you’ll be satisfied with and get into a home that is right for you!

Let Next Level Homes Help!

Now that you know all about interest rates, it’s time to help you get into the right home. Next Level Homes offers beautiful homes inside and out with all the upgrades and customization you could want. We take pride in the high-quality builds we offer. Each floor plan feels spacious and welcoming, giving you and your family the opportunity to stay for years to come. 

Of course, a beautiful home requires an interest rate on a mortgage that you can afford. At Next Level Homes, we understand what it takes to get into the home of your dreams. With beautiful and modern floor plans you’ll love, all that’s left is to get you an interest rate that you’ll be happy with. 

We work with some of the best lenders available, with some of the best rates, to help you get into a Next Level home in no time. We believe getting your dream home shouldn’t be a hassle, and we’re available to help every step of the way. Click on the button below to schedule a consultation with one of our licensed agents today. They can show you through our gorgeous models, and once you pick the right one, they can help you get started on making it your own!

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