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The Internet Says 30-Year Mortgage Rates are Under 3%. Why is My Rate Higher?

It’s a simple question with a simple answer: there is no uniform mortgage rate that everyone qualifies for. Interest rates vary between each individual mortgage loan for numerous reasons, depending on the lender and other factors.

The following is not a complete list (talk to me, your CrossCountry Mortgage loan officer, for more information) but here are some of the primary reasons why rates vary:

  • Qualifying credit score
  • Loan program
  • Loan type (purchase or refinance)
  • Loan-to-value ratio (the amount of your down payment or equity)
  • Amortization
  • Occupancy
  • Property type and number of units
  • Debt-to-income ratio
  • Months of reserves
  • Discount points/origination fees
  • Property location

How is the average mortgage rate calculated?

Let’s look at a recent date as an example. On November 12, 2020, Freddie Mac released their Primary Mortgage Market Survey showing the U.S. weekly average on a 30-year fixed rate mortgage at 2.84%. Here’s how the survey works:

Freddie Mac surveys lenders each week about the rates and points being offered on first-lien prime conventional residential purchase mortgages with an 80% loan-to-value ratio for 30-year fixed, 15-year fixed, and 5/1 hybrid amortizing adjustable mortgage products. The lenders surveyed include a mix of credit unions, commercial banks, and independent mortgage companies nationwide.

It is important to note that the survey is conducted between Monday and Wednesday, and the results are released the following Thursday. Also, the average rate of 2.84% reported on November 12 included 0.7 discount points being charged to the borrower (a discount point is a fee charged by lender for a lower rate; one point equals one percent of the loan amount).

These averages are typically based off the standard consumer profile:

  • $250,000 purchase price
  • 700 credit score
  • 20% down payment

Based on the above scenario, a 2.84% interest rate would cost $1,750 in discount points at a $250,000 purchase price. It all adds up to this: the interest rate you qualify for today may not be under 3%.

Still, mortgage rates remain at or near record lows and are almost a full percentage point lower than they were last year. That means now is the right time to get a great rate that could translate to major savings over the life of your loan.

I’m always available to discuss interest rates and everything else associated with mortgages, so contact me anytime. I’m here to help with free advice and an easy application when you’re ready to move forward with a new home purchase or refinance!