Mortgage rates have surged. Here’s how to get a lower rate

On Jul 11, 2022

A real estate agent stands in the doorway as Giovani and Nicole Quiroz of Brooklyn, New York visit an open house in West Hempstead, New York.

Raychel Brightman | Newsday LLC | Newsday | Getty Images

After dropping to record lows in 2020 and 2021, mortgage rates are back up. Way up. While the past few weeks saw a reversal in the surge, at near 6%, current mortgage rates are still almost double what some homebuyers were paying in recent years. With soaring inflation and the possibility of further rate increases, would-be homebuyers may be looking for ways to lower their rates.

Here are five possible money-saving options.

1. Try to boost your credit score

Consumers may be able to improve their credit score in less than a month, said Daniel Rodriguez, chief operating officer at the wealth management firm Hill Wealth Strategies. Start by checking for discrepancies on your credit report that could make your debt situation appear worse than it actually is, he said. Also, if you have the cash, pay down your debts to reduce your debt-to-credit ratio.

Once you’ve taken positive steps to improve your credit, consider asking your lender to initiate a process called a rapid rescore as a way to get positive changes to your credit updated quickly — typically within a week as opposed to 30 to 60 days.

“Anything helps. Even if it’s only five points, it could make a big difference,” said John W. Mallett, president of MainStreet Mortgage, a mortgage broker in Westlake Village, California.

2. Comparison shop

Compare offerings among a variety of lenders and products. A local bank or credit union where you do significant business could offer more competitive rates than a large bank you’ve never worked with before. You could also try a mortgage broker to compare rates from several different lenders.

A mortgage bank, which specializes in home loan products, could be another option. Before reaching out it’s good to get a baseline idea of what’s available using online tools such as Bankrate.com or NerdWallet.

3. Consider paying points

Mortgage points are fees a borrower pays to a lender in exchange for a reduced interest rate. Each point equals 1% of the total loan amount.

Here’s a hypothetical example for a $200,000 loan taking into account principal and interest only. With zero points and an APR of 4.5%, the monthly payment would be $1,013.37, according to an example from Bank of America. With one point, the buyer would pay $2,000 for an APR of 4.25% and a monthly payment of $983.88. The total savings on a 30-year-loan would be $10,616.40, assuming the buyer owns the home for the full term and doesn’t refinance. With two points, the buyer would pay $4,000 for an APR of 4% and a monthly payment of $954.83. The total savings on that loan would be $21,074.40, again assuming the buyer owns the home for the full 30 years without refinancing.