- Mortgage rates have risen to their highest levels since 2008 just months after near record lows.
- The surge came alongside record rate hikes from the Federal Reserve, which is trying to curb inflation.
- Below are four ways you can ensure you’re getting the lowest possible price now.
Just 18 months ago it was one of the best times in history to apply for a mortgage as the 30-year interest rate was below 3%. The all-time lows available to borrowers were the result of the Federal Reserve’s attempts to revive an economy fresh out of the most abrupt recession on record.
Fast forward to today, where 30-year interest rates have risen above 6% for the first time since the global financial crisis of 2008. Once again, the Fed is in the thick of things after enacting record-breaking rate hikes in an attempt to dampen 40-year high inflation.
And the Fed is far from done, inflation is still running hot. The consensus is that the central bank will hike even more at its next policy meeting, which will push mortgage rates further higher as financial conditions tighten.
If you’re looking to apply for a mortgage in such an environment, it’s still important to make sure you’re getting the lowest possible interest rate. We spoke to Greg McBride, Chief Financial Analyst at Bankrate, who listed four things every mortgage seeker should do to ensure this.
(1) Shop around and compare offers
In this interest rate environment, McBride recommends comparing three to five lenders to see who offers the best interest rate for your situation.
“You should look around regardless of the tariff environment, but especially now. Put all your offers together and look at them thoroughly, including closing costs, fees and points, and make sure you’re getting the best deal possible,” McBride says.
(2) Make sure your balance is in order
Before you shop for lenders or look at homes, pull your credit report from all three credit bureaus: Equifax, Experian, and TransUnion.
“If there is any inaccurate information, now is the time to dispute any inaccuracies or errors so that your loan is in the best possible shape before working with a lender,” says McBride.
Mortgage lenders will review your credit report when making lending decisions to see if you are lending responsibly. You review your payment history for credit cards, personal loans, car loans, etc. and look for a good track record of making payments on time and a credit score that reflects it. Typically, a credit score of 700 or higher will give you the best interest rates.
It’s important to pay all your bills on time each month and reduce the amount of debt you owe. “It’s also a good idea not to apply for new credit while trying to get a mortgage, as it can affect your score,” says McBride.
(3) Settle arrears of debt.
If you have a large credit card or revolving balance, work now to pay off that balance or pay it off in full.
“Any lender will want to see how likely it is that you can afford to pay back the loan so they can look at your overall financial situation. You don’t want to have large outstanding balances that could conflict with a new mortgage payment,” says McBride.
This is important because the bank uses this information to determine your debt-to-income ratio, a measure of financial health that weighs your monthly income against your monthly debt obligations. “The bank will use your DTI to decide if you can afford the mortgage you’re applying for,” says McBride.
It is important to show that your income is worth adding this mortgage loan to your financial situation.
(4) Consider paying a larger deposit
If you can make a larger down payment, the lender will see you as less risky and you’ll usually get a lower interest rate.
“A larger down payment can definitely help, as it contributes to the positive financial image of someone who can pay off the loan and gives the lender a better sense of assuming the risk of lending,” says McBride.
With a purchase this big, even a 1% or 2% savings can add up to thousands of dollars and make a real impact.
“In an environment of rising interest rates and a slowing economy, taking these steps to get the lowest interest rate can really make a difference in your financial situation over the long term,” says McBride.