7 ways to lower your mortgage rate by 1% or more

If you’re looking to buy a home, you probably know that housing affordability is in the dumps. Record high prices and elevated mortgage rates they give a double whammy to potential buyers everywhere.

A recent CNET survey found that half of American adults would realistically consider buying a home or refinancing an existing mortgage if rates should have fallen to 4% or below. Yet most mortgage forecasts don’t even have average rates falling below 6% in 2025.

But average mortgage rates are average. Depending on your financial situation, the rate you qualify for may be significantly lower than that advertised by lenders. A 1% difference in your mortgage rate can save you hundreds of dollars each month and tens of thousands of dollars over the course of your loan.

You can’t control it market forces affecting mortgage rates. However, optimizing your credit score and negotiates with multiple lenders can help you get a lower than average rate on your future home loan.

What is considered a ‘good’ mortgage?

In historical terms, good mortgage rate is generally at or below the national average. The 30-year fixed mortgage since 1971 it has averaged 7.72%, according to Freddie Mac. In the last year, the average rates on mortgage loans mostly ranged between 6% and 7%.

With that in mind, getting a rate in the mid-to-low 6% range is pretty good, according to Sarah DeFloriovice president of mortgage banking at William Raveis Mortgage.

But affordability is relative to your overall financial situation. And because mortgage rates can change daily and even hourly, the definition of a “good” rate can change quickly.

“What matters is the rate you can get today,” said Colin Robertson, founder The truth about the mortgage. According to Robertson, the only way to know if you’re getting a good deal is to talk to several different lenders and brokers, then compare their quotes to daily or weekly averages.

Read more: Still chasing 2% mortgage rates? Here’s why it’s time to let them go

How does a 1% difference affect your monthly mortgage payment?

Lowering your mortgage rate by even 1 percentage point can make a significant difference to your budget, resulting in savings of around 10% on your monthly mortgage payment.

For example, let’s say you buy a home for $400,000 and make a 20% down payment on a 30-year fixed-rate mortgage. The difference between a 7% rate and a 6% rate is a savings of $210 per month, which is $75,748 saved over the life of the loan.

Here’s a quick look at how monthly mortgage payments for the same home at 7%, 6% and 5% compare:

Mortgage rate	Monthly payment	Monthly savings	30-year savings
7%	$2,128.97	–	–
6%	$1,918.56	$210.41	$75,747.60
5%	$1,717.83	$411.14	$148,010.40

Save money on your mortgage with these 7 tips

Improving your credit score, increasing your down payment, buying points and negotiating your rate can help you save money on your mortgage. Taking some (or all) of these steps can lower your rate by 1% or more.

1. Buy mortgage points

A mortgage pointalso known as the mortgage discount point, is an upfront fee you can pay the lender in exchange for lower interest rate on your home loan. Almost half (45%) of homebuyers used this strategy when getting a mortgage in 2022. Zill’s research.

Each point costs 1% of the home’s purchase price and typically lowers the rate by 0.25%. On a $400,000 home, you would pay $4,000 for one down payment. The lender may even let you buy four mortgage points to drop your rate from 7% to 6%, though you’d have to shell out $16,000 to get there.

To check if this strategy is profitable, take the total cost of points and compare it to the total monthly savings. In this case, when you pay $16,000 to buy four points and save $210 a month, it would take you more than six years to break even.

2. Improve your credit score

Lenders are looking at you credit score to decide if you qualify for a home loan and what interest rate you get. FICO credit scores range from 300 to 850, with 850 being the best possible score. Higher credit scores show that you have managed your debt responsibly in the past, so it reduces the risk to the lender. This can help you secure a lower interest rate.

“The best mortgage rates and products are typically reserved for those with a credit score of 740 or better,” DeFlorio said.

If your credit needs work, consider taking steps to increase your credit score before applying for a mortgage. It can help you save big, according to 2024 Lending Tree study. When borrowers moved from the “fair” credit score range (580 to 669) to the “very good” range (740 to 799), they reduced their interest rate by 0.22 percentage points. That rate difference helped borrowers save $16,677 over the life of the home loan.

Still, Robertson said “it’s possible to get a good rate with a lower score, and simply shopping around can make up the difference.”

3. Increase participation

Yours participation is the amount of money you can contribute upfront to the purchase of a home. Every type of home loan comes with a minimum down payment, usually ranges from 0% to 5%but higher participation can help lower the rate. This is because the lender takes on less risk when you contribute more to the loan.

Because participating lowers your rate and builds yours home equitysome home loan experts recommend paying a higher down payment, around 20%, instead of buying mortgage points. That’s because if you sell the house or refinance before you break even, you’re losing money. But the amount you spent for the down payment becomes part of your equity.

4. Get an adjustable rate mortgage

An adjustable rate mortgageor ARM, is a home loan with a fixed rate for a specified introductory period, such as five years. Once that period is over, the interest rate can rise or fall at regular intervals for the remaining period.

The big appeal of ARMs is that the introductory interest rate is often lower than the rate on traditional mortgages. In November, the average 5/1 ARM rate was 6.19% compared to 6.79% for 30-year fixed-rate mortgages.

5. Negotiate your mortgage rate

When you apply for mortgage loans, you don’t have to go with the company that is right for you prior approval. In fact, research shows that getting citation rates of multiple lenders and comparing offers can result in significant savings.

If you want to use this strategy, start by applying for mortgages with lenders that match your criteria. Once you have several loan estimates in hand, use the best one to negotiate with the lender you want to work with.

A loan officer can lower your rate, help you save closing costs or offer other incentives to join. In a LendingTree 2023 Survey39% of homebuyers negotiated the interest rate on their last home purchase. Of that pool of buyers, 80% were able to get a better deal.

6. Opt for a shorter housing loan term

Almost 90% of home buyers choose a 30-year fixed term mortgage because it offers the greatest flexibility and affordability of monthly payments. The payments are lower because they are spread out over a longer time frame, but you can always put more towards the principal here and there.

But when you take out a long-term home loan, “you’re keeping the lender’s money, and there’s an opportunity cost for the funds to be invested elsewhere,” he said. Nicole RuethRueth SVP of the Powered by Movement Mortgage team.

Shorter loan terms, such as 10 years and 15-year mortgages and ARMs, have lower interest rates, so you can lower your rate now.

Choosing a shorter repayment term could help you save money because you’ll pay less interest in the long run. But don’t make it mistake when buying a house choosing a shorter loan term only for a lower rate. Shorter loan terms mean you’ll have less time to repay the borrowed money, resulting in higher monthly payments, so it’s important to make sure they fit into your budget.

7. Buy a temporary mortgage rate

A temporary mortgage rate buyout involves paying a closing fee to lower your interest rate for the first few years of your loan. Because of the significant upfront costs, this strategy only makes financial sense when someone else pays that fee. Homebuilders, sellers, and even some lenders may offer to cover this type of foreclosure to increase sales, especially when market rates are elevated.

For example, a lender may offer a “3-2-1” buyout, where the interest rate is reduced by 3 percentage points in the first year, 2 percentage points in the second year and 1 percentage point in the third. Starting in the fourth year, you pay the full rate for the rest of the loan term.

Buyers often choose a temporary buyout and plan to refinance later. Your redemption funds are refundable and can be used toward closing costs when you refinance (if rates drop).

Should we wait for more affordable mortgages?

Buying a home is a personal decision, so it should fit your situation and budget. As you shop for a home, consider multiple strategies to lower your rate and focus on factors within your control. A mortgage calculator can help you estimate how much you would pay each month.

“If you’re happy with the monthly payments, you shouldn’t be locked into a certain rate,” DeFlorio said. “Especially because if prices continue to rise, you may be paying a higher purchase price because you waited.”

Additionally, the market is particularly uncertain right now as the US prepares for a new presidential administration. Trying to time the market could backfire.

“It’s too easy to make a mistake,” Robertson said. “The decision to buy a home should go way beyond the mortgage rate.”

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