Are you thinking of buying a home? Property buying has many costs involved. This means many, especially first-time buyers, might need to apply for a mortgage loan. Mortgage loans have four important parts. The parts are the principal amount, interest rates, taxes, and insurance. It is important you look at available mortgage loan programs to choose the best. If your approved mortgage rate is 3.25%, is this a good rate?
The answer depends on many factors. The first and most important determinant is your credit score. Your principal amount and payment period are other important factors to consider.
This article will discuss whether a 3.25% mortgage rate is good for you and how to get the best rate possible!
What is a Good Mortgage Rate?
Mortgage rates change frequently. Within hours, what you consider an excellent mortgage rate could look different. If the best rate is 2% at the highest, you could consider any rate between 3% to 3.25% to be good mortgage rates. For instance, mortgage rates plummeted to a record low in 2021, going below 3% for the first time. At such a time like that, 2.875% seems a good mortgage rate.
Remember that these rates vary from one lender to another. A borrower with an excellent credit score could get a mortgage with a 2.5 to 3% loan rate. A low credit could take the loan rate up to 4 percent.
Is 3.25% a Good Mortgage Rate?
You cannot pin down one rate and call it a good mortgage rate. Lower rates are preferable, but they are not available to everyone. Only borrowers with impeccable credit reports.
Consult a mortgage professional to help decide the right mortgage rate for you. A mortgage broker can link you to the most reliable lenders.
Mortgage Rate Trends
There has been a drastic change in 30-year fixed-rate mortgages from January 2022 to July 2023. The rates have more than doubled from 3.22% to 7.12%. The average mortgage rate for a 15-year loan has also surged from 2.43% in January 2022 to 6.55% in July 2023.
In the current loan market, the best type of mortgage is the Adjustable-Rate Mortgage. The current average rate for a 5/1 ARM is 6.04%. A 5/1 ARM loan is an Adjustable-Rate Mortgage with fixed interest rates for the first five years. After five years elapse, the loan switches back to ARM.
Mortgage Rates for July 2023
| Mortgage Loan term | Mortgage Loan Interest Rate | Annual Percentage Rate |
| 30 Years | 5.55% | 5.56% |
| 15 Years | 4.73% | 4.75% |
| 30 Years. Jumbo | 5.46% | 5.47% |
| 5/1 ARM | 3.90% | 4.86% |
How to Get the Lowest Interest Rate on a Mortgage
Getting the lowest interest rate on a mortgage can help you save money over the loan period. It is not guaranteed that you will get lower rates, but you can try to increase your chances. These mortgage tips will help you lower your loan interest rates.
Improve Your Credit Score
Your credit score is the major determining factor in your loan application. This can get you disqualified or given exorbitant rates. Increase your credit score by paying off existing debt and bills on time.
Build a Steady Employment Record
Lenders want to see that you can keep a job. Your last job or current employment should be at least two years. A steady job record demonstrates stability and reliability. These are essential factors determining your average mortgage rates.
Save Up For A Down Payment
A down payment can also help you get the lowest interest rate on a mortgage. A larger down payment means you will have less of a loan balance. This may result in lenders offering lower interest rates. It is also essential to ensure that your down payment is from your funds, not borrowed money.
Understand Your Debt-to-Income Ratio
Your debt-to-income ratio measures how much your income goes toward your existing debts. Lenders will look at this number when determining the interest rate they offer you. Keeping your DTI low can help to increase your chances of getting the lowest interest rate on a mortgage.
Consider Alternative Loan Types Or Terms
The common loan type is the fixed-rate mortgage. Other loan types include adjustable-rate and interest-only mortgages. These may be more suitable for your situation. Consider different terms, such as 15-year versus 30-year loans. This can impact the interest rate you may qualify for.
Shop Among Several Lenders
You should shop around and compare offers from different lenders. Get at least three mortgage rate quotes before deciding which is right for you. Take the time to talk to one mortgage company after another until you get preferable rates.
Lock In Your Rate
Once you have found a mortgage company willing to offer you lower rates, lock it in immediately. Rates can change quickly, so locking your rate will ensure you get the best deal for your mortgage loan.
Take a Look at How to Get the Lowest Mortgage Interest Rate in 2023?:
What Factors Determine Interest Rates?
The interest rate charged on a loan is what determines whether it is fair or not. They can significantly impact how much you pay over your loan duration. It is vital that you know the factors that determine mortgage rates.
Credit Score
Your credit score is one of the most important factors in determining your interest rate. Mortgage lenders use your credit report to assess the risk of lending you money. Those with higher credit scores are seen as less risky borrowers and, thus, may be offered lower interest rates.
When you apply for a loan, the lender pulls your FICO score to determine your credit score. FICO is a credit scoring model developed by Fair Isaac Corporation. FICO shows three different scores, as reported by TransUnion, Equifax, and Experian. Since the three scores may vary, many lenders use the middle credit score.
Down Payment
A larger down payment can also help you qualify for a lower interest rate. A larger down payment reduces your principal amount and the interest rate. It also shows the mortgage lender that you are financially responsible.
Loan Type
Your preferred loan type also affects your interest rate. Government-insured mortgages have lower interest rates than conventional loans. FHA loans also require lower credit scores compared to conventional mortgages.
The loan period also affects your interest rate. Short-term loans have higher interest rates than long-term mortgages.
Interest Rate Type
Mortgage loans have two types of interest rates. If you take a fixed-rate loan, the interest rate remains constant throughout the loan period. If yours is a variable-rate mortgage, the rates change depending on the current mortgage rate trends. Adjustable rates have an initial fixed rate. The variation kicks in once this time elapses.
Loan Amount
Your loan amount is a significant determinant factor of your mortgage rates. The bigger the amount, the higher the interest rate. This also explains why saving up for a larger down payment is advisable before applying for a loan.
Location
The location of the home you are buying is also vital. Some properties are in risky neighborhoods. This increases your mortgage rate significantly. If your home is in an area with large competition from mortgage companies, lenders will offer lower rates to beat the competition.
FAQs
Will House Prices Drop If Interest Rates Rise?
When mortgage loan rates rise, it brings reduced competition among buyers. As a result, sellers will be more willing to reduce house prices.
What Day of the Week is Best for Mortgage Rates?
Wednesdays and Fridays are the best days of the week to lock in your mortgage. This is because mortgage rates fluctuate daily. Wednesdays and Fridays tend to have the greatest likelihood of lowering loan rates.
Where Will Mortgage Rates Be in 2025?
According to Moody’s analytics, mortgage rates for a 30-year period will drop to 6% by the end of 2024 and 5.5% by late 2025. Should you buy a house when interest rates are rising?
Should You Buy a House When Interest Rates Are Rising?
Increased mortgage interest rates reduce buyer competition. This is the best time to purchase your desired home. At this time, sellers will be more willing to negotiate and reduce prices.
Is a 3.5 Interest Rate Good for a Mortgage?
As of July 2023, 3.5% is a good mortgage interest rate. It is below average. In 2020 and 2021, during the pandemic, home loans were at a record low. At the time, a 3.5% rate was above average.
Final Thoughts
Whether 3.25% is a good mortgage rate depends on many factors. Such factors include your financial situation and the type of mortgage you are getting. In the current mortgage market conditions, the average interest for a 30-year mortgage is 5.5%. This makes a 3.25% rate on a mortgage loan good.
