Current Mortgage Rates Explained

Current mortgage rates are lower than they’ve been in many years. In fact, we saw record-low interest rates earlier this month. At the time this article was published, the current rate for a 30-year fixed mortgage was just over 5%. They may be higher or lower by the time you read this article.

But that’s not what this article is about. I’m not going to talk to you about numbers and percentages. Instead, I want to explain what the current mortgage rates mean to a home buyer in the first place. Here’s some perspective for you:

The Truth About Mortgage Rates

• Mortgage lenders advertise their rates in a specific way. They generally promote the lowest rates they have available for different mortgage products. Obviously, they do this to attract customers. But these advertisements will always be followed by a disclaimer of some kind, and there’s a good chance that disclaimer will use the words “well qualified borrowers.”
• So, when you see the current mortgage rates listed on a particular website (or on TV, radio, etc.), you need to remember that magic phrase — for well qualified borrowers. Depending on your credit score and other factors, you may or may not qualify for the advertised rates. You might get a lower rate. You might get a higher one. It all depends.
• So what does it take to be a “well qualified borrower” these days? That depends on the lender. They all define it differently, because they all have their own unique guidelines for making loans. The most important factors are your credit score, your debt-to-income ratio, and the size of your down payment.
• To qualify for the best rate, you’ll probably need a credit score above 760 and a down payment of 20%, among other things. You might have to pay points on the loan, as well (this is money paid up front, during the closing process).
• Current mortgage rates are determined by a variety of economic factors. They are partly influenced by the interest rates set by the Federal Reserve (a.k.a., “The Fed”). The Fed has already stated that it will keep rates near zero for much of 2010. So it’s likely that mortgage loan rates will also hold steady for much of the year.
• What does all of this mean to home buyers? Here’s the important thing to remember. It can be helpful to keep an eye on current mortgage rates, because they affects the size of your monthly loan payment. But there is no guarantee you’ll qualify for the low rates a particular lender has advertised. You’ll have to apply for a loan and see what they’re willing to offer.
• You can increase your chances of getting a low rate by increasing your credit score, saving up for a down payment, and reducing your overall debt. The credit score has the largest impact.
• You can find current mortgage rates on a variety of websites. For starters, you can check out Bankrate.com, Interest.com and LendingTree.com. They all provide this kind of information.

So there you have it — a crash course in current mortgage rates and what they mean to you, as a home buyer. I hope you have found this article helpful in understanding the big picture. If you have additional questions about this topic, just type them into the search box at the top of this website.