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The mortgage rate environment has been turbulent in recent years.
After hovering near record lows during the height of the pandemic in 2020 and 2021, rates surged as the Federal Reserve attempted to reign in inflation. The benchmark interest rate was raised so high that mortgage rates subsequently hit their highest point since 2000 last summer, leaving many buyers and owners looking to refinance with limited options.
But there are hopeful signs that the mortgage rate climate could soon be improving. The Federal Reserve has halted any additional rate hikes — and mortgage rates have fallen slightly as a result. When the Fed finally does cut rates, as many expect to happen later this year, mortgage rates will drop, too. That said, the economy is still fluid and if inflation doesn’t continue to come down (it rose in December) an additional rate hike is possible.
In this environment, both buyers and owners should understand what they should and shouldn’t do when looking for a favorable rate. Below, we’ll break down a series of mortgage rate dos and don’ts to know now.
Start by exploring your mortgage rate options here to see what you can qualify for.
Mortgage rate does and don’ts to know now
Here are three mortgage rate dos and a few don’ts to account for now.
Do: Shop for rates
No matter what you’re borrowing money for it always makes sense to shop around to find the lowest rates and best terms. This is never more important than it is for mortgages, which are often the biggest purchase most adults will make.
Considering that many mortgages come in 30-year terms, even a rate that’s just slightly lower compared to the alternatives could result in thousands of dollars in savings over the life of the loan. And with mortgage rates fluid now it makes sense to do your research to find the best loan term for your needs.
Start shopping for mortgage rates and lenders all in one place here.
Don’t: Wait for rates to drop
Mortgage rates can and likely will drop later this year. But the amount they drop by is unknown and it may be minimal. Plus, a drop in rates is likely to complicate homebuying and could lead to increased competition and, maybe, higher home prices. So don’t wait for this to happen. A lower rate in the future may be negated if the cost of buying the home is elevated.
Do: Lock in a good rate when found
Because of the volatility in the market now — and the numerous factors that can affect daily mortgage rates — don’t hesitate to lock in a good rate when found. You can always unlock it and secure a lower one before closing, depending on the lender you use.
Or you could refinance to a better rate once you’ve closed on the property. Just be ready to lock in a good rate when you find it because it may not be that favorable long term.
Don’t: Damage your credit in the process
Remember that the best mortgage rates will be reserved for those borrowers with the highest credit scores and cleanest credit histories, so be careful not to damage your credit during the mortgage application process. This means paying down your existing debt and not applying for new credit. It also means paying your current bills on time.
As mentioned, the mortgage rate climate is fluid right now and you may need to lock in a good rate quickly. So make sure your credit is in top shape when you do.
Learn more about today’s mortgage rates online.
Do: Buy your dream home if found
Your dream home won’t be listed on the market every day (hence its name) so be aggressive when it does, regardless of the prevailing rates. Instead, take a “date the rate, marry the home” approach and buy the house now and refinance to a lower rate when they stabilize in the future. Just don’t pass up on the opportunity when it presents itself because it may not be available again.
Don’t: Neglect other ways to get a low rate
While today’s mortgage rates aren’t ideal, you shouldn’t neglect other ways to get a low rate. That includes applying for an adjustable-rate mortgage (which will change over time but could mean a better, lower rate now) and purchasing mortgage points (by paying your lender to secure a lower rate than you normally otherwise would have been offered).
Neither option will generate the sub 3% rates you could have secured a few years ago, but they will give you a better rate than you would have got on your own.
The bottom line
The mortgage rate environment is still turbulent but there are reasons to be optimistic. However, there are generally better approaches than others right now. So shop for rates and lock one in when you find a good one but don’t be afraid to buy your dream home now, even if the rate isn’t ideal. On the other hand, don’t wait for rates to drop and avoid damaging your credit score and profile in the process. And don’t neglect to explore other potential ways to get a low rate. By taking these approaches now you’ll improve your chances of getting the best rate with the most appropriate lender for your unique circumstances.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
