Since late last year, mortgage rates have been all over the place. At first, they dropped to the low 6% range, then back up above 7%, and are now holding in the mid-6% range.
Yikes.
If this feels stressful, you’re not the only one. Watching rates go up and down can make buying a home seem like a guessing game. But here’s the good news—you don’t have to wait for the “perfect” rate to make homeownership happen.
No matter where rates are, there are still ways to find good opportunities. When you understand what causes rates to change, you’ll feel more in control and ready to lock in the best deal for you. Let’s take a look at why mortgage rates go up and down—and what you can do about it.
Why Do Mortgage Rates Change?
It might seem random, but mortgage rates don’t just change for no reason. They’re affected by things like inflation, the Federal Reserve (the Fed), and how strong or weak the economy is. Here’s a quick breakdown:
The Federal Reserve’s Role: The Fed doesn’t set mortgage rates, but it does control a key interest rate that affects them. When inflation gets too high, the Fed raises rates to slow down spending, which often leads to higher mortgage rates.
The Economy & Jobs: When the economy is doing well and more people have jobs, mortgage rates tend to go up because more people are borrowing money. When the economy slows down, rates often drop to encourage people to borrow and spend.
Financial Markets: Mortgage rates are linked to things like Treasury bonds and mortgage-backed securities. Investors want a good return on their money, so when these investments shift, mortgage rates adjust too.
Government Programs: Sometimes, the government creates programs to help people buy homes, like tax credits or down payment assistance. These programs can make more people want to buy, which can lead to higher rates.
Global Events: Big world events—like wars, pandemics, or elections—can affect the U.S. economy, which in turn can cause mortgage rates to change.
How to Plan for Monthly Mortgage Costs
When mortgage rates keep changing, planning your monthly payments can feel tricky. But with a few smart steps, you can stay on track:
Use a Mortgage Calculator: Try different numbers to see how your payment changes with different interest rates and down payments. This will help you figure out a monthly payment that works for you.
Remember Other Costs: Your mortgage payment isn’t just about the loan—you’ll also have to pay for property taxes, homeowner’s insurance, and possibly private mortgage insurance (PMI) if your down payment is under 20%.
Prepare for Rate Changes: If possible, plan for a slightly higher rate just in case it goes up before you close. That way, you won’t be caught off guard.
With careful planning, you can feel more confident about your budget no matter what rates do.
How to Get the Lowest Mortgage Rate
Right now, buyers are finding creative ways to get better deals. According to Zillow, nearly half of recent homebuyers (45%) locked in rates below 5%. How? By using things like builder incentives, seller financing, refinancing, or even help from family. Here are some ways you can lower your mortgage rate, too:
Improve Your Credit Score
A higher credit score can mean a lower interest rate. Here’s how to keep your score strong:
Pay down your debts.
Don’t open new credit accounts before buying a home.
Consider rent-reporting services, which can help boost your credit if you pay rent on time.
A good credit score shows lenders you’re responsible, which can save you thousands over the life of your loan.
Use Mortgage Points or a Rate Buydown
You can pay extra upfront to get a lower interest rate. This is called buying mortgage points or doing a rate buydown. Some builders even offer to cover these costs to attract buyers. Just make sure:
You know how long it will take to break even on the upfront cost.
You talk to a loan expert to see if this strategy fits your budget.
Look at Different Loan Options
Most people get a 30-year fixed-rate mortgage, but other options—like adjustable-rate mortgages (ARMs) or shorter-term loans—might have lower rates. An ARM starts with a lower rate that can change later, which could be a good option if you don’t plan to stay in the home forever. Just be careful—your payment could increase later on.
Check Out Down Payment Assistance Programs
The more money you put down, the lower your rate might be. But if saving a big down payment is tough, look into programs that help with down payments. According to Zillow, 60% of first-time buyers used some kind of assistance.
Negotiate with Sellers or Builders
Since more homes are available now, some sellers and builders are offering special deals to get buyers. In fact, 35% of buyers this year got a lower rate because of seller incentives. Don’t be afraid to ask if the seller will help with closing costs—it could save you a lot of money.
Mortgage rates will always go up and down, but that doesn’t mean your dream of owning a home has to wait. Start exploring your options and talk to a mortgage expert to find the best path for you. Instead of waiting for the “perfect” rate, focus on making the best decision based on your unique situation.