Mortgage Rates on the Rise Again - How to Lock in a Good Rate

by Herb Rim

If you've been watching mortgage rates lately, you've likely noticed them creeping up once more. As of March 18, 2024, the average rate on a 30-year fixed mortgage has risen to 7.125%, up 0.25 percentage points from just a few days ago.

Rising rates can make an already expensive housing market even harder to afford for many prospective homebuyers. However, there are some strategies you can use to try locking in a decent mortgage rate before rates potentially climb higher.

Why Are Mortgage Rates Going Up?

Mortgage rates don't exist in a vacuum - they are heavily influenced by inflation and the economic policies implemented by the Federal Reserve to control inflation. When inflation is high, the Fed typically raises the federal funds rate, which is what banks charge each other for overnight lending. This upward pressure on borrowing costs gets passed along to consumers through higher rates on financial products like mortgages, auto loans and credit cards.

While inflation has come down from its peak in 2022, it remains elevated at over 6% year-over-year as of the latest data. The Fed has signaled it may need to continue raising rates or hold them at restrictive levels to fully wrestle inflation back under control.

This expectation of higher future interest rates is causing lenders to raise mortgage rates proactively. The average 30-year fixed rate remains significantly higher than it was just two years ago before the Fed's rate hiking cycle began.

How to Get a Lower Mortgage Rate

No one can predict for certain where mortgage rates will head from here. Some forecasters expect rates to moderate if inflation keeps cooling, while others warn rates could stay elevated or even continue marching upward.

With that uncertainty, if you are seriously looking to purchase a home in the near future, it could make sense to act now before rates move any higher. Here are some tips that can help you qualify for a lower mortgage rate:

- Shop around and compare multiple lenders - Mortgage rates can vary significantly from one lender to the next, so get quotes from at least 3-5 different banks and mortgage companies. Their rates may differ by 0.5% or more for someone with your credit profile.

- Get pre-approved, not just pre-qualified - Pre-approval requires a hard credit check and more extensive documentation from you, but it gives lenders a complete picture to offer you their best possible rate and terms.

- Put down 20% or more - Making a larger down payment of 20% or more could allow you to avoid paying private mortgage insurance premiums and qualify for better rates. It demonstrates you have significant skin in the game.

- Boost your credit score - Higher credit scores get rewarded with the lowest rates available. Work on paying down balances, disputing any errors, and delaying new credit applications until your mortgage closes.

- Consider an adjustable-rate mortgage - An adjustable-rate mortgage (ARM) can be smart if you plan to stay in the home less than 10 years. ARM rates are typically 0.5-1% lower than 30-year fixed rates. Just understand the rate can adjust higher later on.

Additionally, once you find the best rate available to you, consider locking it in through a mortgage rate lock.This allows you to lock today's rate for typically 30-60 days as you go through the final stages of underwriting and closing on your home purchase.

While rising mortgage rates are disheartening for buyers, there are ways to maximize your negotiating power with lenders. With some diligent preparation and shopping around, you should still be able to land a mortgage at a reasonable rate given the current market conditions.

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Herb Rim

Realtor | License ID: 01870707

+1(818) 699-9175