How to Get the Best Interest Rate for Your Mortgage

November 22, 2021

When shopping for a mortgage, you’ll want to pay attention to the interest rate offered by each lender. Rates often vary by lender, but even differences as small as one-quarter of a percentage point can save you thousands of dollars over the life of your home loan.

Man coloring with son

Interest rates matter. Understanding how lenders determine your interest rate, how it impacts your monthly costs and how you may be able to lower your rate can help you secure the best mortgage for you.

Why Is This My Interest Rate?

Lenders set an interest rate for each person based on several factors — some of which you can influence.

The most important factor you have control over is your credit score. Your credit score helps lenders determine how much they trust you to repay your debts. Typically, the higher your credit score, the lower your interest rate.

If you don't know your credit score, which ranges from 300 to 850, find out. You're entitled to receive a free copy of your credit report each year from all three major credit bureaus via

What Can I Do to Help Lower My Interest Rate?

The good news is that rates are often negotiable. In other words, you can ask lenders to match the rate quoted by another lender.

You can also work with your lender to understand what you can do to lower your rate. They may suggest working on your credit score or paying mortgage points.

Get Quotes from Multiple Lenders

Different lenders will offer you different terms, which is why it's important to get quotes from more than one lender, compare your options and ask questions.

Take Steps to Improve Your Credit

If your credit score is on the low side, you can take steps to improve it. You'll want to start this process long before contacting mortgage lenders, because it can take some time to see a change in your credit score, depending on where you start and your end goal.

Consider Paying Discount Points

Paying mortgage points, also known as discount points, lowers your interest rate. Points are fees paid directly to the lender when you close your loan. One point costs 1% of your mortgage amount (or $1,000 for every $100,000).

Discount points allow you to pay some interest up front in exchange for a lower interest rate, and the money you pay in points may be tax-deductible.

As a rule of thumb, consider paying points if you plan to own the home for a long time.

How Does My Interest Rate Affect My Payment?

To show how even a small difference in your interest rate can make a big difference in your payments over the life of your loan, let's look at an example of the same home loan with different interest rates.

Say you're buying for a home for $250,000, you have a 30-year fixed-rate mortgage, and you were able to make a 20% ($50,000) down payment.

Let’s see how your monthly payments and total interest vary based on different interest rates.

Interest RateMonthly Payment
excluding taxes and insurance
Total Interest Paid
over 360 months

With a difference of more than $42,000 in interest paid based on only a 1 percentage point difference in the interest rate, you can see why it's important to shop around with different lenders and compare interest rates to find the best fit for your needs.

To learn other strategies to make homebuying more affordable, visit My Home by Freddie Mac®.

My Home in your inbox

Sign up to receive resources, tools and tips about buying, owning, refinancing, selling and renting a home in your inbox.