December 2023

5 key factors that affect your mortgage rate

If you're thinking about buying a home this fall, don't let current mortgage rates scare you away. While it's true that rates have gone up from the historically low rates of 2020 and 2021, if you look at the bigger picture, you'll see that current rates are not so unusual. In fact, the average 30-year mortgage rate between 1971 and 2023 was 7.74%.Footnote1

However, it still pays to shop for the best possible rate, because your monthly payment as well as your overall interest costs depend on it. Start by understanding the factors that can affect your rate so you can take action to get the best possible deal.

Your credit and payment history

Lenders start by looking at your credit score to get an idea of how good you are at paying off debt. Your credit score is based on your payment history and how much debt you have, among other factors. Since higher scores usually translate to better interest rates, it’s a good idea to check your credit history and correct any inaccuracies before you apply for a mortgage.

Tip: If your credit score is low, you can improve it by paying off debts and making sure you can show at least six months of on-time payments.

The size of your down payment

Loans with lower down payments can be perceived as riskier, so rates may be higher. Also, with most mortgages, putting less than 20% down means paying private mortgage insurance (PMI). For example, with a $300,000 loan, PMI could add $125 to $375 to your payment each month, depending on the same factors that affect your overall rate.Footnote2 If you can’t afford a large down payment, talk to your lender about options that may be available.

Tip: You may be eligible for help with your down payment. Visit the Bank of America Down Payment Center to search for programs in your area.

The term of the loan

Most mortgages are paid over a term of 30, 20 or 15 years. Your rate may be higher or lower depending on the loan term you choose. Shorter terms usually get a lower rate, but keep in mind that monthly payments are higher with a shorter term. You may find it’s worth paying a higher rate so you can spread payments out over a longer term and have smaller monthly payments.

Tip: Consider your budget when you choose a loan term and balance the amount of interest you may pay against the size of your monthly payment.

The type of loan you choose

There are a number of different loan categories, including conventional loans and government-sponsored loans. Plus, if you're a moderate-income buyer, you may qualify for a low-down-payment loan such as Bank of America's Affordable Loan Solution® mortgage.Footnote3 Rates can be affected by the loan program you choose.

Tip: Talk to a lending specialist to see what type of loan may be right for you.

The lender you choose

Rates vary from lender to lender, so try to get more than one rate quote. One way to do that is to get prequalifiedFootnote4 with several different lenders so you have a personalized estimate of how much you can borrow and what the rate may be. Once you choose a lender, you can usually apply and lock in your rate for 30 to 60 days. However, if rates go up before you find a home, you may need to pay an additional fee to keep the lower rate.

Tip: You may want to consider paying discount points, an upfront fee that lowers your rate over the term of the loan. This can be worth the cost if you plan to keep the loan for a long time.

Finally, remember that while rates are important, they're just part of the picture. Talk to a lending specialist to explore loan types and down payment options so you can ensure your monthly payment will be affordable for you now and in the future. While you may be able to refinance if rates go down after your purchase, consider that a bonus, not a guarantee.

A note from your lending specialist

I'll be happy to discuss your options and help you find a home loan with a competitive rate that works for your situation.

1 Mortgage rates chart: Historical and current rate trends, Peter Miller, updated by Paul Centopani, The Mortgage Reports June 27, 2023. Accessed August 2023.

2 How much is mortgage insurance? PMI cost vs. benefit. By Tim Lucas, updated by Aleksandra Kadzielawski, The Mortgage Reports, February 16, 2023. Accessed August 2023.

3 Maximum income and loan amount limits apply. Fixed-rate mortgages (no cash out refinances), primary residences only. Certain property types are ineligible. Maximum loan-to-value (“LTV”) is 97%, and maximum combined LTV is 105%. For LTV >95%, any secondary financing must be from an approved Community Second Program. Homebuyer education may be required. Other restrictions apply.

4 Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.


MAP5979022 | 10/2023

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