The average rate on the 30-year fixed mortgage notched its biggest one-day drop in more than a year on Friday.
Although mortgage rates are now at their lowest level since October, the average rate for a 30-year, fixed-rate mortgage is still just around 6.29%, according to Mortgage News Daily — a big leap from the under 3% levels near the start of the pandemic.
But there are ways to get even better terms on a home loan, experts say.
Where mortgage rates stand
More signs point to an interest rate cut when the Federal Reserve meets on Sept. 17, which may offer a little more relief for would-be homebuyers.
Even though 15- and 30-year mortgage rates are fixed, cuts in the Fed’s target interest rate could provide some downward pressure, according to Lawrence Yun, chief economist at the National Association of Realtors.
However, “even in anticipation rate cuts, consumers should view 6% as the new normal through the early part of next year,” Yun said.
“Expecting 4% or 5% — I don’t think it will happen,” he added.
Three ways to get a lower mortgage rate
Regardless of where mortgage rates are heading, potential buyers have some control over the rates they will pay.
Here are a few key money moves to help secure the best terms on a home loan:
1. Improve your credit score
Your creditworthiness will ultimately determine what rate you can qualify for. “If you have a higher FICO score, you are going to get a better rate,” said Scott Lindner, national sales director, real estate & secured lending at TD Bank.
FICO scores, the most popular scoring model, range from 300 to 850. A “good” score generally is above 670, a “very good” score is over 740 and anything above 800 is considered “exceptional.”
For example, borrowers with a credit score between 780 and 850 could lock in a 30-year fixed mortgage rate of 6.19%, but it jumps to 6.39% for credit scores between 700 and 739. On a $350,000 loan, paying the higher rate adds up to an extra $13,000, according to data from LendingTree.
The best way to improve your credit score comes down to paying your bills on time every month, even if it is making the minimum payment due.
As a general rule, it’s also essential to keep revolving debt below 30% of available credit to limit the effect that high balances can have.
Alternatively, “asking your credit card issuer for a higher credit limit can boost your score,” said Matt Schulz, LendingTree’s chief credit analyst. “That higher limit can help lower your utilization rate, but only if you don’t see that newly available credit as an excuse to spend.”
You may also be able to improve your credit score simply by fixing errors on your credit report, Schulz said. “Even a single late payment on your credit report can knock 50 points or more off of your credit score, so if there’s one listed wrongly on your report, you need to get it fixed.”
The length of your credit history is another important factor: A longer credit history helps raise your score because it provides lenders with a better understanding of how you manage your debt.
1. Boost your down payment
Additionally, if you put more money down on the home at the outset, you may be able to secure a better rate from lenders, according to Lindner.
Borrowers who put 20% down “would definitely get a lower mortgage rate,” Yun also said, “because there is more skin in the game and lenders are more willing to lend.”
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Yet, for many Americans, putting 20% down on a house “is just not realistic,” according to Schulz.
In fact, the average down payment was 18% for all home buyers in 2024, and just 9% for first-time home buyers, according to the National Association of Realtors.
“However, if you can do it, the savings can be massive,” Schulz said. Not only would putting 20% down save you tens of thousands of dollars in interest over the life of the loan, but it could also save you thousands of dollars a year by avoiding private mortgage insurance, Schulz added. “It’s a really big deal.”
3. Think beyond a 30-year fixed
Finally, “don’t put yourself in a position where you think a 30-year mortgage is your only option,” Lindner said. In fact, more buyers are considering adjustable-rate mortgages, or ARMs, which offer lower initial rates than fixed-rate loans.
An ARM could shave as much as half a point off your rate, Lindner said. Currently, the rate for a 7/6 ARM is 5.59%, according to Mortgage News Daily.
“A seven-year ARM gives people the chance to take advantage of a lower rate today,” Lindner said — and “if you think rates will go down, you can always refinance in the future.”
For that reason, ARMs have been growing in popularity, according to Yun. About 90% of consumers get a 30-year fixed, he said, but tapping an ARM is a good way to get into the market.
Still, whether this is the right option also depends on your time horizon, Yun added. Generally, ARMs make the most sense for buyers who are looking at a short timeline, particularly for “people in the late 20s or 30s, who may trade up,” he said.
Otherwise, you risk ending up with an interest rate down the road that is substantially higher than a fixed-rate loan.
