What Affects Mortgage Rates?

Mortgage rates can change weekly, daily, and even hourly, and are affected by both factors outside your control and those within your control.

External factors

External factors that affect mortgage rates include the Federal Reserve and U.S. Treasury. As the bonds and securities markets fluctuate, mortgage rates can also rise and fall, although the outlook is much longer-term than the basic interest rate at any given time.

The economy can also affect the housing market and the interest rate. When the economy is thriving, or the purchasing power of your dollar decreases due to inflation, it can drive mortgage rates up. A depressed economy typically sees mortgage rates going down.

How many homes are available in any given market may affect mortgage rates. As supply and demand flow and ebb, mortgage rates will go up and down as well.

Personal factors

Your own financial situation, the types of loans you apply for and qualify for, your credit score, and your debt-to-income (DTI) ratio also affect your mortgage rate. These are factors you can examine ahead of time, and work on. If you can raise your credit score and drop your DTI ratio, you can often qualify for a better interest rate and more favorable terms on your mortgage loan.

Loan Program Mortgage Rate APR* 1 Day Change
Conventional 30 year fixed 6.381% 6.453% +0.01%
Conventional 20 year fixed 6.043% 6.121% -0.08%
Conventional 15 year fixed 5.653% 5.776% -0.07%
Conventional 10 year fixed 5.631% 5.815% +0.02%
Conventional 7 year ARM 6.417% 7.342% +0.14%
Conventional 5 year ARM 6.393% 7.516% +0.02%
FHA 30 year fixed 5.542% 6.373% Unchanged
VA 30 year fixed 5.694% 5.872% -0.13%
VA 15 year fixed 5.24% 5.51% -0.1%
VA 5 year ARM 6.092% 6.773% +0.05%

Data source: ©Zillow, Inc. Use is subject to the Terms of Use

Fixed Rates vs. Adjustable Rates

Most home buyers are better served by a fixed rate mortgage, which means the interest rate won’t fluctuate based on central bank rates. If interest rates drop sharply during the term of your loan, you can always refinance to take advantage of the lower rate. Adjustable rate mortgages are tied to fluctuating interest rates, and can lead to unexpectedly high mortgage payments

Annual Percentage Rate (APR)

Mortgage rates don’t just include interest, but extra costs like loan origination fees, which can rise when lenders aren’t driven to be highly competitive. You may also find other fees being attached to your mortgage, which makes the annual percentage rate, or APR, much higher. It’s important to go over the entire projected costs of your mortgage and try to negotiate fees down or get them waived by your lender.

Getting the best mortgage rate means carefully choosing your lender and being aware of current economic conditions as well as your own financials and credit. By getting the lowest possible mortgage rate, you can reduce what you pay over the term of your loan.


Buying a Home?

Each step-by-step guide is designed to shepherd you through a process from start to finish. Know what to expect and how to proceed, no matter where you are in your home buying journey.

1 The First Step in Buying a Home – Preapproval

What Is a Mortgage Preapproval? | How Much Will My Monthly Payment Be? | How Much Will My Down Payment Be? | How Long Does a Mortgage Preapproval Last? | What Is the Difference Between a Standard Preapproval and an Underwritten Preapproval?

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3 How much money do I need?

How Can I Lower My Mortgage Payment? | How Can I Lower My Closing Costs? | When Do I Pay Out-Of-Pocket Costs? | What are Prepaid Items or Escrows? | What Will My Closing Costs Be?

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4 The Basics of Mortgage

What Documents Need to be Updated During the Home Loan Process? | What Contingencies Do I Need? | How Important is the Closing Date? | Steps in the Loan Process | Understanding Common Mortgage Terms

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5 Finding a Real Estate Agent

What Are the Top 6 Questions to Ask a Real Estate Agent? | Should I Use the Seller's Real Estate Agent? | Are Online Discount Realty Services a Good Idea? | How Much Does a Buyer's Real Estate Agent Cost? | Why Do I Need a Real Estate Agent to Buy a Home?

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