How to Secure Lower Mortgage Rates as 30-Year Fixed Hits One-Year Low

Mortgage Rates Reach One-Year Low Amid Economic Shifts

The average interest rate for a 30-year fixed mortgage experienced its largest single-day decline in over a year, dropping to approximately 6.29%, the lowest level since October 2024, according to Mortgage News Daily. Despite this decline, current rates remain substantially higher than the sub-3% levels observed at the onset of the COVID-19 pandemic.

Federal Reserve and Market Expectations

Market analysts anticipate a potential interest rate cut by the Federal Reserve at its September 17 meeting, which could provide some relief to prospective homebuyers. Lawrence Yun, chief economist at the National Association of Realtors, noted that while mortgage rates are fixed for 15- and 30-year terms, reductions in the Fed’s target rate may exert downward pressure on mortgage costs.

However, Yun cautioned that consumers should consider a 6% mortgage rate as the baseline for the near future, dismissing expectations of rates returning to 4% or 5% in the short term.

Strategies to Secure Lower Mortgage Rates

Prospective borrowers can influence the mortgage rates they obtain through several actionable measures:

1. Enhance Your Credit Score

Creditworthiness remains a primary determinant of the mortgage rate offered. Scott Lindner, national sales director for real estate and secured lending at TD Bank, emphasized that higher FICO scores correlate with better rates. For example, borrowers with scores between 780 and 850 could secure a 30-year fixed rate near 6.19%, compared to 6.39% for scores between 700 and 739—translating to roughly $13,000 more in interest on a $350,000 loan.

Improving credit involves timely bill payments, maintaining revolving debt below 30% of available credit, and correcting errors on credit reports. Matt Schulz, LendingTree’s chief credit analyst, highlighted that even a single erroneous late payment can significantly damage credit scores.

2. Increase Your Down Payment

Contributing a larger down payment can lead to more favorable mortgage rates. Borrowers putting down 20% typically benefit from lower rates due to reduced lender risk. Yun affirmed that a substantial down payment signals greater borrower commitment.

Nonetheless, Schulz acknowledged that a 20% down payment may be unattainable for many, citing that the average down payment in 2024 was 18% overall and only 9% for first-time buyers. Still, those able to make larger down payments can realize meaningful savings by reducing interest costs and avoiding private mortgage insurance fees.

3. Consider Adjustable-Rate Mortgages (ARMs)

Exploring alternatives to the 30-year fixed mortgage can also yield lower rates. ARMs, particularly the 7/6 ARM, currently average around 5.59%, offering potential savings of up to half a percentage point compared to fixed rates.

Lindner noted that ARMs allow borrowers to capitalize on lower initial rates with the option to refinance if rates decline. Yun observed rising ARM popularity among younger buyers or those planning to move within a few years, though he warned that ARMs carry the risk of higher rates after the initial fixed period.

Conclusion

While mortgage rates have declined to their lowest in nearly a year, they remain elevated relative to historical lows. Borrowers aiming to secure the best possible terms should focus on strengthening credit profiles, maximizing down payments where feasible, and evaluating mortgage products beyond the traditional 30-year fixed option. Monitoring Federal Reserve decisions and market trends will be critical in navigating upcoming rate fluctuations.