Mortgage rates have risen significantly in recent years, making homeownership more expensive than before. A seven percent interest rate on a mortgage means higher monthly payments and tens of thousands more in interest over the life of a loan. However, there are ways to lower your rate and save money—whether you’re a first-time buyer or refinancing your home.
This guide explores proven strategies to help you avoid high mortgage rates, explaining why each method works and how you can use them to your advantage.
1. Improve Your Credit Score Before Applying
Why it helps: Lenders use your credit score to determine your risk as a borrower. The higher your score, the lower the interest rate you’ll qualify for.
A good credit score (typically 740 or higher) tells lenders that you’re responsible with debt and likely to make payments on time. A low score, on the other hand, increases the lender’s risk, leading to a higher interest rate.
How to improve your credit score:
✔ Pay down high-interest debt (like credit cards)
✔ Make all payments on time—no late payments
✔ Avoid opening new credit accounts before applying for a mortgage
✔ Check your credit report for errors and dispute any inaccuracies
Even a small boost in your score can lower your mortgage rate and save you thousands over the life of your loan.
2. Shop Around for the Best Lender
Why it helps: Mortgage rates vary between lenders, and even a small difference can significantly impact your monthly payment and total interest paid.
Different lenders have different approval criteria, promotions, and loan programs. By comparing rates from banks, credit unions, online lenders, and mortgage brokers, you increase your chances of finding the best deal.
For example, a 0.5% difference in a $400,000 mortgage rate can save you over $100 per month and $30,000+ over 30 years.
3. Consider Buying Discount Points
Why it helps: Discount points let you pay upfront to lower your interest rate, which can be beneficial if you plan to stay in the home for many years.
Each point typically costs 1% of your loan amount and lowers your interest rate by about 0.25%. If you’re buying a $400,000 home, purchasing one point for $4,000 could lower your rate from 7% to 6.75%, reducing your monthly payment.
When it makes sense: If you plan to live in the home for at least 5-7 years, you’ll likely break even on the upfront cost and enjoy long-term savings.
4. Opt for a Shorter Loan Term
Why it helps: Shorter loan terms, like 15 or 20 years, typically have lower interest rates than 30-year loans because lenders take on less risk.
For example, as of early 2024:
- A 30-year fixed mortgage might have a 7% rate
- A 15-year fixed mortgage might have a 6.25% rate
While the monthly payment is higher for a shorter loan, the savings in interest can be tens of thousands of dollars over time.
5. Make a Larger Down Payment
Why it helps: A larger down payment reduces the lender’s risk, making them more likely to offer a lower interest rate.
If you put down at least 20%, you’ll:
✔ Avoid private mortgage insurance (PMI), which can cost hundreds per month
✔ Show lenders that you’re financially stable, potentially qualifying for a lower rate
If you can’t afford 20%, even increasing your down payment from 5% to 10% can sometimes get you a better rate.
6. Consider an Adjustable-Rate Mortgage (ARM)
Why it helps: ARMs start with a lower initial rate than fixed-rate loans, which can be beneficial if you don’t plan to stay in the home long-term.
For example:
- A 30-year fixed loan might have a 7% rate
- A 5/1 ARM might have a 5.75% rate for the first 5 years
This could save you hundreds per month in the short term. However, after the initial period, the rate can adjust—so ARMs work best if you plan to sell or refinance before that happens.
7. Lock in Your Rate at the Right Time
Why it helps: Mortgage rates fluctuate daily based on economic conditions, Federal Reserve decisions, and market demand. Timing your rate lock wisely can prevent you from getting stuck with a higher rate.
Tips to lock in a good rate:
✔ Keep an eye on Federal Reserve rate trends
✔ Work with your lender to lock your rate when it’s favorable
✔ Ask about float-down options, which allow you to secure a lower rate if rates drop before closing
Some lenders even offer free rate locks for 30-60 days, giving you flexibility while finalizing your home purchase.
Take the Next Step Toward Homeownership
Avoiding a 7% mortgage rate is possible with the right strategies, and we’re here to help you navigate the process. Whether you’re a first-time buyer or looking to refinance, The Coley Group has the expertise and local connections to guide you to the best options.
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Contact us today to connect with trusted lenders and start your home-buying journey with confidence.
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