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This tool will quickly return your P&I payment, the all-in monthly payment & how much interest you would pay on your home at each rate throughout the duration of the loan. If you are only interested in the principal & interest portion of the payments please enter 0 in the property tax, insurance, HOA and PMI fields.
We publish current mortgage rates to help you perform accurate calculations & find a local lender.
Not sure if interest rates are headed higher or lower? Use this calculator to quickly compare how rate shifts may impact your monthly loan payments. This calculator will estimate your monthly loan payments for 5 interest rates at the same time. To use this calculator insert current mortgage rates along with an amount to increment the rates by. The calculator will return the monthly payments for today's rate along with the payments for rates 2 increments lower up through 2 increments higher. For convenience sake the default rate increment is set to a quarter percent, which is equivalent to a mortgage discount point from most lenders.
Mortgage Rate Comparison Calculator
Current 30-YR Fixed Mortgage Rates
The following table highlights current mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Maximizing Your Savings Through Lower Mortgage Rates
Feeling excited (or anxious) about market rate changes is a milestone in adulthood. Rates have far-reaching effects on your financial status. Often, changes in prevailing rates can mean greater or fewer expenses down the line. While the numbers seem inconsequential, the financial impact is deep. Even a small change of less than a percentage point can save you thousands over the life of your mortgage.
Nowhere is this apparent than in buying a house. Most people buy houses through mortgages. You can cut down on your monthly payments by selecting the mortgage with the lowest rates. To save on interest when buying a house, you must secure the best available rates from your lender.
The Buzz on Rates
But how can such small numbers make a big difference? To understand this, we must look at how loans work. Lenders make money off interest, the amount they charge for the use of their money. Your rate is the percentage you must pay as interest according to the amount you borrowed. In general, the higher your rate, the more you must pay in interest. How much interest you must pay also depends on how the rate interacts with two other variables:
- Principal: The amount you borrowed
- Term: The length of time it takes to repay your debt
Rates are either fixed or variable. Fixed rates remain the same throughout your loan’s term. Adjustable rates vary along a benchmark. If the benchmark (or index) goes up, so does your rates, and vice versa.
One of the biggest impacts of rates can be seen in long-term debts. Debts with high rates cost more in the long run. The longer it takes to pay off your debt, the more you must pay in interest. When it comes to mortgages, however, this isn’t always clear. A standard 30-year fixed-rate mortgage may have a smaller monthly payment. But you pay several times more in interest than a 15-year mortgage. What appeared cheaper on the surface was, in truth, more expensive.
For home buyers, securing the lowest rates available is critical to save money in the long run. This is especially important if they cannot afford to pay for a shorter loan term. Rates tend to vary little among banks and other lenders. Competition ensures that rates are within a narrow range of one another.
Rate Factors
Lenders don’t just give the advertised low rates to anyone who walks in. Thus, the rates they offer tend to vary. Some lenders are willing to give you lower or higher offers depending on the impression you give them. They are also not obligated to give you the best rates off the bat. Thus, you should shop around for mortgage options. You might just secure the best rates from a borrower if they feel they can secure your business with them. In general, having a higher credit score increases your chances of securing a more favorable rate.
The length of your mortgage’s term is a big influence on the size of your rate. A 30-year fixed-rate mortgage will often have a much higher rate than a 15-year mortgage. A longer term puts fixed-rate lenders at a disadvantage due to inflation. Even if they’re making a profit on paper, the money itself has lost value. Higher rates help hedge against this long-term risk.
Another factor is the cost of your home. Lenders define this as your home’s sale price and closing costs minus your down payment. Larger mortgage principals are riskier to lenders. In general, bigger and more expensive homes confer greater risks of default. One way to lower your rates is by borrowing less money. To shrink your principal, pay a higher down payment and cover your closing costs out of pocket.If you can, try to save for a 20 percent down payment. This will also help you avoid the extra cost of private mortgage insurance (PMI).
Other factors affecting price, such as the home’s location, can also influence your rates. Interest rates can vary across regions and cities. This tool from the Consumer Financial Protection Bureau can help you assess the prevailing rates that apply to each region.
The creditworthiness of a borrower is also a vital consideration. A lender must be confident that they will have their money back. They often give higher subprime rates to borrowers with less-than-stellar credit. This offsets most of the risks to the borrower, who of course, pays greater expenses down the line. Lenders, meanwhile, see people with better credit scores as more trustworthy. They are more likely to pay on time and less likely to default on their mortgages.
The Subprime Mortgage Crisis
People with poor credit histories often struggle to get approved for mortgages today. However, this wasn’t always the case. Well into the 2000s, lenders encouraged prospective homeowners to get subprime mortgages. There was a very real risk of buyers defaulting on their debts as a result.
These mortgages became controversial in the wake of the Great Recession in the late 2000s. Too many people defaulted at the same time. This led to a domino effect that had profound repercussions across the world economy.
The Federal Connection
These rates tend to follow those set by the Federal Reserve. The Federal Open Market Committee (FOMC) meets on a regular basis to decide whether to raise or lower rates. Most changes done are in response to economic conditions. This has a profound impact across the national economy.
Bank rates rise and fall along Federal rates, though not always to the same degree. Raising rates encourages austerity. The biggest winners are those who save money and avoid debt. The opposite is also true when rates go down. People make less money from saving, but can borrow money at a lower cost.
The FOMC often lowers rates to stimulate the economy in times of crisis. This encourages people to take out car loans and mortgages. Since the rates are low, their monthly payments and total costs will also be low. It also encourages people who already had mortgages to refinance. People who buy when rates fall often receive bargains.
In the wake of the COVID-19 pandemic, banks across the globe lowered their benchmark rates. The Federal Reserve kept their rates at near-zero. This led to a hot market for homes in the second half of 2020. Uncertain conditions due to the pandemic kept rates low well into the following year.
As of February 4, 2021, mortgage rates remained flat, hovering between 2 and 3 percent. The following table shows average mortgage rates in both February 2020 and February 2021. The data is recorded from Freddie Mac’s Primary Mortgage Market Survey.
| Category | 2020 Average Rate | 2021 Average Rate |
|---|---|---|
| 15-Year Fixed-Rate Mortgage | 2.97% | 2.21% |
| 30-Year Fixed-Rate Mortgage | 3.45% | 2.73% |
| 5/1 Hybrid Adjustable-Rate Mortgage | 3.32% | 2.78% |
Fixed-Rate Mortgages
Fixed-rate mortgages are the most popular home financing option in the U.S. for a reason. Their payments stay the same unless you choose to pay extra. Thus, they provide a steady, predictable monthly payment that is easy to blend into the budget. In the U.S., the fixed-rate period of a mortgage lasts throughout the amortization period. Most of these mortgages come with 15- or 30-year terms.
The 30-year fixed-rate mortgage is a unique fixture in American real estate. As envisioned, it was meant to help entry-level homeowners afford monthly mortgage payments. These buyers could spread payments out across 30 years. This mortgage enabled real estate developers to market to a greater number of buyers. Its critics, however, believe that the 30-year mortgage had not been an effective wealth-building tool. It certainly comes with steep long-term costs.
A 15-year mortgage lasts for half as long as its 30-year counterpart. Thus, its monthly payments tend to be much higher. Despite this, the 15-year fixed-rate mortgage offers several advantages to the home buyer. In general, 15-year mortgages have lower annual percentage rates. Their shorter terms mean you pay less interest over the life of the loan. And because the term is shorter, you spend less of your money paying for your mortgage.
Ups and Downs
Fixed-rate mortgages offer stability for the home buyer. Their rates are locked the moment you sign onto the mortgage. This hedges against the uncertainty of rate fluctuations at the cost of savings. You never need to worry about paying higher rates when the benchmarks go up. When rates go down, however, you miss out on interest savings. The only way to change your rates is to refinance at great expense.
In other countries, fixed-rate terms are not locked to the life of the mortgage. To keep your mortgage’s terms, you must refinance every five to ten years. In the U.K., fixed rate mortgages are not as popular as their adjustable-rate counterparts. Observers believe this allowed many British homeowners to avoid foreclosure during the Recession. When the benchmark rates went down, so did the mortgage payments.
Adjustable-Rate Mortgages
The adjustable-rate mortgage (ARM) is not a popular mortgage option in the U.S., and with good reason. These mortgages have rates that rise and fall over time. This can make it hard for many families to plan their budgets around these mortgages. They don’t provide a lot of long-term stability. Many buyers can expect a rude awakening in the form of higher monthly payments.
However, there are a few buyers who are drawn to these mortgages. For one, they tend to be easy to apply for. Many subprime mortgages are ARMs. They also offer much lower monthly payments because of their low initial rates. Finally, an ARM is especially advantageous if rates go down. When that happens, you don’t need to worry about the costs of refinancing.
In some cases, ARMs can seem cheaper than fixed-rate mortgages. Many have offered annual percentage rates (APR) lower than those of fixed-rate mortgages. This introductory rate lasts for a brief time, between a few months to a year in most cases. Hybrid ARMs, meanwhile, have fixed-rate periods that last for several years, such as 5/1 ARM, 7/1 ARM and 10/1 ARMs. Once this period lapses, your rate becomes pegged to an index rate. Usually, though not always, your rate goes up and down alongside the index.
The fixed-rate period and adjustment increment of an ARM are expressed in fractions. A 5/1 hybrid ARM, for instance, has a fixed-rate period that lasts for 5 years. After which, its rates will adjust each year.
Many adjustable-rate mortgages have a cap. This dictates how low or high your mortgage can adjust. Knowing what your caps are is essential before taking on an ARM. Your mortgage may not be worth keeping for long if these conditions are met:
- The cap for the highest rates is too high.
- The cap for the lowest rates are not low enough
Some buyers who seek out ARMs are people who do not plan on staying in their homes for long. These include house flippers, who would want to reduce their mortgage costs. They can often sell their properties before the rates adjust. But this is not always guaranteed.
Lock It In!
Low index rates rarely last forever. Fortunately, some lenders provide a way for buyers to have it both ways by refinancing your mortgage. Ask if you have the option of locking in ARM rates when they go down. In effect, this converts your ARM into a fixed-rate mortgage. However, if the prevailing fixed rates are much higher than your present APR, refinancing may not always yield the best rates. This is also the case if your credit score is not high enough. Ideally, borrowers tend to refinance when market rates significantly fall. This ensures they can reduce their rate at least 1% to 2% lower than their original rate.
Need help choosing between a fixed or adjustable-rate mortgage? Refer to this table:
| Loan | Fixed-rate Mortgage | Adjustable-rate Mortgage |
|---|---|---|
| Best suited for | People who want to pay a stable payment for the entire loan People who intend to live in their home for many years People who can afford to pay the monthly payments at market rates People who believe interest rates will rise Those who do not have higher yielding assets they are confident investing in | People who believe rates are likely to fall People who are ready to face the risk of market changes People who need a lower upfront monthly payment to reach DTI limits & plan to refinance in the future People with higher-yielding investments with stable returns People who plan to live in the home for a shorter time People who are flipping homes |
| Not suited for | People who believe the interest rates will go down People who cannot afford a higher upfront payment | People who value the need for a steady payment People who want long-term homes People who believe rates are likely to rise People who cannot afford to pay higher monthly amortization when rates rise |
| Advantages | Stable payments for the life of the loan regardless of market shifts Builds significant home equity right away No payments shocks or surprise payments from resetting rates | Initially, it typically charges lower interest rates Requires lower upfront monthly payment |
| Disadvantages | You end up paying more for interest compared to a shorter term or if you don’t pay off your mortgage early | As rates rise and the teaser period ends, monthly payments can reset and increase significantly |
Discount Points
Discount points let you buy a better interest rate. In effect, you offer to pay more money up front to lower your future interest rate. These are an expensive option compared to qualifying for a lower rate outright. However, it can be worthwhile, especially if you have a long amortization period. Paying for points can help you save thousands of dollars over the life of your mortgage.
There are two ways to cover the costs of points. One is to pay for them out-of-pocket. While this is the cheaper option, it can be quite steep up front. If you’ve earned more than enough money, paying for points up front is the better option. The alternative is to roll your points into your mortgage. This allows you to save money today or use it for other purposes. However, note that financing discount points will increase your loan amount, which results in higher monthly payments. Thus, it’s wiser to pay for discount points upfront.
To be worthwhile, you must be willing to stay in your new home for several years. Discount points are not worthwhile if you expect to sell your house or refinance your mortgage soon.
Refinancing
Refinancing involves using a new mortgage with new terms to pay off an old one. Once that’s done, you need only to pay the new mortgage’s payments. People usually seek refinancing if they can save more money with a new mortgage. Often, people refinance their mortgages to change the rate, the term, or both.
Most people choose to refinance their mortgages when benchmark rates plummet. You can save thousands of dollars in interest payments by refinancing to a lower rate. Yet this can be an expensive proposition. To maximize your savings, you must bring down your rate to at least two percentage points.
Refinancing is also an option for people with ARMs. This helps them lock in their rates and prevent further volatility. However, it is impossible to predict when rates rise or fall with any accuracy. On one hand, you lose out on even lower rates when you refinance too soon. On the other, you may refinance too late and be saddled with higher rates.
Another challenge of refinancing are prepayment penalties. Refinance too soon, and you could be slapped with a hefty prepayment penalty. In the past, these penalties could last for several years. Some penalties last up to five years. Others could last through the lifetime of the mortgage. Today, new legislation limits prepayment penalties. Since 2014, they only apply for the first three years of every new mortgage.
Finally, refinancing is a costly proposition. Your closing costs can be between 3 and 6 percent of your mortgage’s value.
Examining the Difference
You can often see the biggest savings when you bring down your interest rate by a full percentage point. But even smaller increments have a big impact on your total costs. Let’s see this in action. Suppose you want to buy a house worth $300,000 through a fixed-rate mortgage. To avoid private mortgage insurance, you pay a 20 percent down payment. In the year you plan to buy the house, the interest rate your lender offered was 2.5 percent.
For this example, we’ll assume that the interest rates fall up and down by 0.25 percent each year. Here’s how much you can expect to pay if the rates go up or down:
30-Year Fixed-Rate Mortgage
Home Value: $300,000.00
Down Payment: $60,000.00
Loan Amount: $240,000.00
Rate/APR: 2.5%
Expected annual change: 0.25%
Annual Escrow Costs
Property Taxes: $2,500.00
Home Insurance: $1,200.00
HOA Fees: $250.00
| Results | 0.50% Decrease | 0.25% Decrease | Fixed | 0.25% Increase | 0.50% Increase |
|---|---|---|---|---|---|
| Interest Rate | 2.00% | 2.25% | 2.50% | 2.75% | 3.00% |
| Monthly P + I | $887.00 | $917.00 | $948.00 | $980.00 | $1,012.00 |
| Monthly Payment | $1,445.00 | $1,476.00 | $1,507.00 | $1,538 | $1,570.00 |
| Total Principal | $240,000.00 | $240,000.00 | $240,000.00 | $240,000.00 | $240,000.00 |
| Total Interest | $79,351.00 | $90,261.00 | $101,384.00 | $112,720.00 | $124,266.00 |
| Sum of P&I payments | $319,351.00 | $330,261.00 | $341,384.00 | $352,720.00 | $364,266.00 |
What seems like such an inconsequential change can lead to big costs down the line. You can save between $11,123 and $22,033 on interest payments if you wait for the rates to drop down. However, you might pay $22,882 more if rates go up by 0.5 percent. You lose out on big savings when you lock in your interest rate that year. But you also hedge against higher interest payments if the rates go up.
Inflation as Your Ally
A fixed-rate mortgage puts inflation on the side of the borrowers. You do not need to adjust your mortgage payments for inflation. While your payment stays the same on paper, the value of the money goes down. In this time, your income would often also rise. Thus, the true amount that you pay to your mortgage actually shrinks!
This is especially fortuitous for rental property investors. Their property value grows and their rents rise. But their mortgage expenses remain static. As a result, their properties become more profitable.
Your Rate Game Plan
Building and improving your credit score is an important part of the home buying process. You’ll need a sterling credit score to qualify for the best rates. To build a credit score, you must be consistent and punctual with your debt payments. One study reveals that people with higher FICO scores had more revolving debt. This indicates that they take on a lot of debt that they likewise pay off on time.
The need for a credit score puts people who never had any debts at a marked disadvantage. But for people who fought hard to defeat their existing debts, this is a welcome reward. In the past, millennials were priced out of the housing market in the wake of the recession. Between 2019 and 2020, millennials lead other generational demographics in credit score improvements.
The following table shows the average credit score per age demographic between 2019 and 2020.
| Generation | 2019 | 2020 | Change |
| Generation Z (18-23) | 667 | 674 | +7 |
| Millennials (24-39) | 668 | 679 | +11 |
| Generation X (40-55) | 688 | 698 | +10 |
| Baby boomers (56-74) | 731 | 736 | +5 |
| Silent generation (75+) | 757 | 758 | +1 |
As a result, more millennial buyers have entered the real-estate market. Better scores will translate to lower rates and greater long-term savings. Shortening your term can also help you save money. If you can afford a higher monthly payment now, you can save thousands of dollars on your mortgage.
In Summary
The first and most important step is to put your best financial foot forward. Improve your credit rating by paying off consumer debts that you’ve built up. Achieving a life free of mounting consumer debt accomplishes several financial goals at once. Removing your debts helps you build credit and bolster your cash flow.
Take the opportunity to build up your savings. A large down payment can help you save money on your mortgage in more ways than one. Besides lowering your rates, a 20 percent down payment helps you remove extraneous costs like private mortgage insurance.
The Credit-Building Process
Debt is an unavoidable part of the credit-building process. Your credit score is a summary of your on-time debt payments. If you’ve somehow lived debt-free, however, you would not have these records at all! Avoiding debts altogether is thus a disadvantage when it’s time to buy a house.
Learn how to use consumer debt responsibly. Credit cards, for instance, cannot charge you interest when you pay off your balances on time. You can begin credit-building by using credit cards for inexpensive everyday purchases. Take care to spend only what you can afford to pay in full to avoid hefty interest charges. And if you can’t, always pay more than the minimum.
Examine your budget and look at how much you can set aside for home payment. Once you’ve gotten your finances in order, you might be surprised at what you can afford. If you have room for a larger monthly payment, consider getting a shorter mortgage term. Don’t forget to save aggressively. Secure better rates and lower your monthly payments through larger down payments.
Don’t be too worked up about possible rate changes in the future. If a drastic change in mortgage rates comes your way, you can eventually refinance if you can afford it. Keep your credit in good standing and you can seize lower rates when they come your way.
Getting the lowest rates for your mortgage is the key to saving the most money when buying a home. But don’t let the news of dropping rates drive you to impulse. Remember, it takes more than opportunism to secure a good rate. Improving and maintaining your financial standing is essential to qualify for the best rates the market has to offer.
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