Mortgage Rates: An Easy Guide for Buyers
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
If you’re in the market to buy a home, you have most likely thought about mortgage rates and how they might affect your purchase.
But to make the most of your potential home purchase, you need to understand how mortgage rates work—what they are, how they are determined, and how they impact the amount of money you’ll pay to purchase a home.
Our guide will explain mortgage rates, cutting through the confusion to help you understand exactly what you can expect when buying a home and how it will impact your bottom line.
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DISCLAIMER: This article is meant for educational purposes only and is not intended to be construed as financial, tax, or legal advice. HomeLight always encourages you to reach out to an advisor regarding your own situation.
What is a mortgage rate?
When you obtain a loan from a lender to purchase a home, your mortgage is the agreement between you and the lender to use that money to purchase or refinance a property.
Your mortgage rate, also known as an interest rate or mortgage interest rate, is the interest rate you’ll pay in addition to your home loan.
For example, as a rough estimate, your lender gives you $300,000 to purchase a home. This amount is called the loan principal. Each month, you’ll make payments to pay down this $300,000. This payment will be a combination of your mortgage rate and your monthly payment. The lower the mortgage rate, the better because that means you’ll pay less each month, with more money available towards your loan principal.
What are the different types of mortgage payments?
The mortgage you acquired and the estimated time it will take you to pay off your loan will impact your monthly interest rate and the type of payments you’ll be expected to make.
Generally speaking, you’ll encounter two primary types of mortgage rates.
Fixed-rate mortgage: If you have a fixed-rate mortgage, this means that your mortgage payment will be the same every month (or “fixed”). This will be true for the life of the mortgage, which is either a 15-year or 30-year loan. Additionally, your mortgage will be locked into a single interest rate for the life of the loan. It’s important to note that with a fixed-rate mortgage, though your rate is fixed, your property taxes and homeowner’s insurance can still increase, so plan accordingly.
This is one of several reasons (aside from affordability) that high-interest environments scare off potential homeowners—no one wants to lock themselves into a 7% rate for the life of a 30-year loan when there’s a chance 6% could be waiting for them. Ideally, you want to lock in at the lowest rate possible. While refinancing later can be an option, it can be difficult if the value of your home drops.
Adjustable-rate mortgage (ARM): An adjustable-rate mortgage starts at a lower introductory rate for a set period of time. When that period ends, your rate will adjust to align with the market. Typically, the initial interest rate for an ARM is lower than a fixed-rate mortgage,
ARMs are best for buyers who plan to own their homes for only a few years or who expect their income to increase while they own the property.
What determines my mortgage rate?
There aren’t any single determining criteria for your mortgage rate; your lender sets the mortgage rate, but it considers a whole host of variables—from your credit score to your existing debt-to-income ratio and annual income, along with several other factors. Many of these are outside of your control, such as economic conditions or policies set by The Federal Reserve.
Additionally, these rates will vary depending on your lender and the loan products they offer.
Other criteria that can influence your mortgage rate include inflation, the type of property purchased, your requested loan amount and down payment, and the type of loan.
What is a good mortgage rate?
What is considered a “good” mortgage rate will depend significantly on the individual, including their economic circumstances, needs, and homeownership goals.
As of November 2024, the average mortgage rate for a 30-year fixed-rate mortgage sits at around 6.68%.
According to data from HomeLight’s Top Agent Insight report for the end of 2024, which surveyed over 700 real estate agents on the state of the market, 45% of agents believe that interest rates will drop in 2025, allowing more buyers to enter the market.
While a 6% to 7% interest rate environment might not be a deterrent for wealthy buyers, in 2024, most would-be homeowners have expressed a desire to wait for a better interest rate environment below 6%, according to data from HomeLight’s Lender Insights report.
Historical perspective on mortgage rates
While a 6.68% interest rate isn’t what most people are hoping to lock into when purchasing a home, rates have been considerably higher in the past.
According to data from Freddie Mac, the average 30-year rate since 1971 is 7.73%.
Mortgage interest rates 1974-2024
| Year | Average 30-year rate | Year | Average 30-year rate | Year | Average 30-year rate | Year | Average 30-year rate |
| 1974 | 9.19% | 1987 | 10.21% | 2000 | 8.05% | 2013 | 3.98% |
| 1975 | 9.05% | 1988 | 10.34% | 2001 | 6.97% | 2014 | 4.17% |
| 1976 | 8.87% | 1989 | 10.32% | 2002 | 6.54% | 2015 | 3.85% |
| 1977 | 8.85% | 1990 | 10.13% | 2003 | 5.83% | 2016 | 3.65% |
| 1978 | 9.64% | 1991 | 9.25% | 2004 | 5.84% | 2017 | 3.99% |
| 1979 | 11.20% | 1992 | 8.39% | 2005 | 5.87% | 2018 | 4.54% |
| 1980 | 13.74% | 1993 | 7.31% | 2006 | 6.41% | 2019 | 3.94% |
| 1981 | 16.63% | 1994 | 8.38% | 2007 | 6.34% | 2020 | 3.10% |
| 1982 | 16.04% | 1995 | 7.93% | 2008 | 6.03% | 2021 | 2.96% |
| 1983 | 13.24% | 1996 | 7.81% | 2009 | 5.04% | 2022 | 5.34% |
| 1984 | 13.88% | 1997 | 7.60% | 2010 | 4.69% | 2023 | 6.81% |
| 1985 | 12.43% | 1998 | 6.94% | 2011 | 4.45% | 2024 | 6.1%- 6.8%* |
| 1986 | 10.19% | 1999 | 7.44% | 2012 | 3.66% | 2025 | TBD |
Source: Freddie Mac (*2024 estimated average range as of October 31)
How do I get the best mortgage rate?
As we discussed above, several factors are out of your control when it comes to securing the best rate, but that doesn’t mean you are helpless when buying your home.
Here are a few things you can do to help secure the best rate possible for your situation:
- Negotiate with lenders: You might think negotiating with a lender is a lost cause, but you’d be surprised. Equifax says negotiating your mortgage rate is possible and usually in your best interest. Additionally, you should always shop around when searching for a mortgage, getting quotes from several lenders and comparing their terms, rates, and fees. However, when negotiating, it’s important to have a strong understanding of your financial situation, including your credit score, debt-to-income ratio, and income.
- Increase your credit score: Your credit score is one of the most important factors that a lender will consider when determining your rate. The higher the score, the better. Some things you can do to increase your credit score include paying off your credit card balances, avoiding opening any new cards before applying for a mortgage, and shoring up any existing outstanding debts or discrepancies that may exist on your credit report.
- Consider mortgage points: Points are upfront fees you pay at closing to lower your mortgage rate. One point typically costs 1% of the loan amount and reduces your interest rate by a set amount. This is a good option if you plan on staying in your home for the long haul.
- Consider a shorter-term loan: The monthly payments are typically higher for shorter-term loans (like 15-year fixed loans) but these loans generally have lower interest rates than 30-year loans.
“Some of the biggest factors are the percentage you put down and your credit score. In both cases, the more, the better,” says Richie Helali, a mortgage specialist at HomeLight.
“It’s always best to shop around for the best rate and terms. As a general rule of thumb, get a rate quote from at least three or four mortgage lenders before committing,” he adds.
Interest rate vs. APR
Knowing the difference between the loan’s interest rate and the annual percentage rate is important.
- Interest rate: The interest rate is the percentage charged on your mortgage loan principal. This is one aspect of your loan. It represents the cost of borrowing but does not include other fees you might pay.
- APR (Annual Percentage Rate): APR includes the loan’s interest rate and additional lender fees, such as closing costs or origination fees. The APR shows you a more complete picture of the loan’s cost. When comparing loans, the APR reflects what you’ll pay beyond the interest.
Consider working with a top agent
Knowing the scope of mortgage rates is just one aspect of a successful home purchase. Having an experienced real estate agent on your team can help illuminate the rest of the picture. A top agent can walk you through the home-buying process, negotiate on your behalf, and help you make the right decisions from the beginning to the end.
With HomeLight’s free Agent Match platform, you can find a qualified agent with proven results in your area. Connect with a top-performing real estate agent today to start your journey toward finding your dream home — and securing the best mortgage possible.
Header Image Source: (Taylor Simpson / Unsplash)
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