Mortgage rates are the single biggest variable in the cost of a home. A 0.5% difference on a $400,000 30-year mortgage works out to about $40,000 over the life of the loan. Even small movements matter, and the gap between the best rate and the average rate a typical buyer accepts is often much larger than 0.5%.
This is a guide to what actually drives mortgage rates today, what changes them, and the steps that will get you the lowest rate you qualify for.
Rates updated: market conditions change. Use this as a framework, not for specific rate quotes.
What “today’s mortgage rate” actually means
When you see a national average like Freddie Mac’s weekly Primary Mortgage Market Survey, that figure represents the average rate offered to a borrower with a strong credit profile and a 20% down payment on a conventional 30-year fixed loan. Your rate will be different – sometimes meaningfully better, often a little worse – depending on the inputs we’ll walk through below.
The rate you can lock today is set by your specific lender on the day you lock, based on the bond market that morning. It is not the same as the headline number you read in the news.
What drives mortgage rates
Mortgage rates track the 10-year Treasury yield, not the Fed’s federal funds rate directly. That’s because fixed-rate mortgages are bundled into mortgage-backed securities and sold to investors who compare their yield to the 10-year. When investors expect inflation, the 10-year yield rises, and mortgage rates follow.
Three factors move that 10-year yield:
- Inflation expectations. Higher expected inflation pushes yields up because investors demand more return.
- Fed policy. Even though mortgages don’t track the federal funds rate directly, the Fed’s policy stance shapes inflation expectations.
- Economic growth. Stronger growth means more competing demand for capital, raising yields.
The takeaway: don’t try to time the bottom. Pick a rate range you can afford, get pre-approved, and act when a home you want fits the math.
Fixed vs adjustable rate mortgages
A fixed-rate mortgage locks the rate for the life of the loan. Predictable, simple, the standard choice. The 30-year fixed is the most common.
An adjustable-rate mortgage (ARM) offers a lower initial rate that adjusts after a fixed period – typically 5, 7, or 10 years. A 7/1 ARM is fixed for 7 years, then adjusts annually.
ARMs make sense when:
- You plan to sell or refinance before the adjustment kicks in
- The initial rate is significantly lower than the 30-year fixed
- You can comfortably afford the maximum payment if rates rise to the cap
ARMs are risky when:
- You assume you’ll move “in a few years” but life happens
- The savings vs the fixed rate is small (under 0.5%)
- You’re stretching your budget at the initial rate
For most buyers planning to live in the home long-term, the 30-year fixed is still the right default.
How credit score affects your rate
Your FICO score is the single largest input under your control. Roughly:
| Credit score | Typical 30-year rate (relative to top tier) |
|---|---|
| 760+ | Best available rate |
| 740-759 | +0.125% |
| 720-739 | +0.25% |
| 700-719 | +0.5% |
| 680-699 | +0.75% |
| 660-679 | +1.0% |
| 620-659 | +1.5% or more |
On a $400,000 loan, the difference between a 760 score and a 660 score works out to roughly $250-300/month for the entire 30-year life of the loan – about $90,000 in extra interest. If your score is borderline, spending 3-6 months improving it before applying produces one of the highest ROI returns of any financial activity. Our guide to improving your credit score covers the fastest wins.
Down payment and PMI
The standard advice to put 20% down has two real benefits: a smaller loan, and no PMI (private mortgage insurance). PMI typically runs 0.3-1.5% of the loan annually and adds $100-300 to your monthly payment.
That said, waiting years to save 20% in a fast-rising market can cost more than the PMI you’d pay by buying earlier. Run the numbers both ways. Our Mortgage Calculator lets you toggle down payment percentages side by side.
Points: should you buy down the rate?
Discount points are pre-paid interest. One point typically costs 1% of the loan amount and reduces the rate by 0.25%. On a $400,000 loan, one point costs $4,000 and saves about $50-60/month.
The math is breakeven:
- Cost of points: $4,000
- Monthly savings: $55 (varies by rate)
- Breakeven: about 73 months, or roughly 6 years
Points make sense when:
- You’re certain you’ll stay in the home longer than the breakeven period
- You have the cash on hand without depleting your reserves
- You expect rates to stay stable or fall (refinancing later wastes the point cost)
If there’s any meaningful chance you’ll sell or refinance within 5-7 years, skip the points.
How to shop multiple lenders (and why three minimum)
Federal Reserve data shows that borrowers who get just one quote pay measurably more than borrowers who get three or more. Yet most buyers only talk to one lender – usually whoever their real estate agent recommends.
Get quotes from at least three of the following four types:
- A mortgage broker (shops multiple wholesale lenders for you)
- A direct lender (Rocket Mortgage, Better, etc.)
- A traditional bank (Chase, Wells Fargo)
- A credit union you belong to
Ask each for a Loan Estimate on the same loan: same purchase price, same down payment, same term, same lock period. The Loan Estimate is a standardized form, so you can compare line by line.
When you receive the quotes, the differences will surface in three places: the rate itself, the lender fees, and the discount/lender credits. Take the best one back to the other two and ask them to match or beat it. This is normal industry behavior. Lenders expect it.
The pre-approval process step by step
A pre-approval is a lender’s commitment in writing to lend up to a specific amount based on a documented review of your finances. It’s stronger than a pre-qualification (which is just a soft estimate) and is what real estate agents and sellers expect.
To get pre-approved you’ll provide:
- Last 2 years W-2s or tax returns (full returns if self-employed)
- Recent pay stubs (last 30 days)
- Bank, brokerage, and retirement account statements (last 2 months)
- A list of your debts
- Authorization to pull credit
The lender runs your credit, debt-to-income ratio, and asset reserves through their underwriting and issues a pre-approval letter for a specific amount and rate range. Most are valid for 90 days.
Don’t take the pre-approval as your budget. Lenders will often approve you for substantially more than is comfortable. Use our Mortgage Calculator to model a payment that keeps your total housing cost under 28% of gross income.
What to do when you find your rate
When the rate you’ve been quoted hits a level you can live with, lock it. Rate locks typically run 30, 45, or 60 days. Longer locks cost slightly more.
If rates fall during your lock period, ask your lender about a one-time float-down option. Many lenders offer it for a small fee or no fee on retail mortgages. It’s not advertised but is often available if you ask.
Key takeaways
- Mortgage rates follow the 10-year Treasury yield, not the Fed funds rate directly
- Your credit score moves your rate more than any other single input
- 30-year fixed is the right default for most long-term buyers
- Always get quotes from at least 3 lenders and use them against each other
- Don’t buy points unless you’re certain you’ll stay past the breakeven year
- Get pre-approved before house hunting, but treat the approved amount as a ceiling, not a target
Frequently Asked Questions
Is now a good time to buy a house? “Best time” usually means “when your finances are ready and the home fits the math.” Trying to time rates is generally a losing strategy.
Should I wait for rates to drop? If rates drop after you buy, you refinance. If they don’t, you’ve locked a fixed payment you can afford. Waiting in a fast-appreciating market often costs more than the rate savings would have been.
What’s the lowest credit score I need? FHA loans can go as low as 580 with a 3.5% down payment, or 500 with 10% down. Conventional loans typically require 620+. The lower your score, the higher your rate.
Can I refinance later if rates drop? Yes. The rule of thumb is to refinance when rates drop 0.75-1% below your current rate and you’ll stay in the home long enough to recoup closing costs (typically 2-3 years).
How much income do I need for a $400,000 home? At a 7% rate, 20% down, average property tax and insurance, the monthly PITI is roughly $2,700. Using the 28% rule, that requires gross monthly income of about $9,650, or $116,000/year.