How to Get a Lower Mortgage Interest Rate

When purchasing a home or refinancing, one of the most important factors is the interest rate. Even a 1% difference in the interest rate can result in tens of thousands of dollars in additional costs over the life of the loan. It affects not only your monthly payment, but also the total interest paid over time.

Today, we’ll explain some realistic and practical ways to help you secure a lower mortgage interest rate in the United States.

1. Keeping Your DTI (Debt-To-Income Ratio) Low Is Important

DTI (Debt-to-Income ratio) refers to the percentage of your debt compared to your income, and it is one of the most important factors in mortgage qualification. It is generally calculated based on your income reported on tax returns over the past two years and your current monthly debts and expenses.

If you have enough time to prepare, increasing your income as much as possible and reducing your monthly debt obligations can help you qualify for better interest rates and loan terms.

Having high debts such as car payments, credit card balances, and personal loans can affect not only your approval chances but also your interest rate.

High monthly obligations such as:

- - Car payments
  - Credit cards
  - Personal loans

can affect both your interest rate and loan approval.

Good DTI Examples

- - Under 36% → Excellent
  - Under 43% → Generally acceptable
  - Around 50% → Limited program options possible

How to Lower Your DTI

- - Reduce credit card balances
  - Pay down car loans
  - Consider adding a co-borrower
  - Strengthen income documentation

2. Managing Your Credit Score Is Extremely Important

One of the biggest factors affecting mortgage interest rates is your credit score.

Generally:

- - 760+ → Best interest rate possibilities
  - 720+ → Good loan terms possible
  - Below 680 → Higher interest rate possible
  - Below 620 → Limited loan program options

How to Improve Your Credit Score

(1) Lower Your Credit Card Utilization

The lower your balance compared to your credit limit, the better.

Example:

- - - - Credit limit: $10,000
        
        Recommended balance: Under $2,000

(2) Avoid Late Payments

Even one late payment can significantly lower your score.

(3) Reduce Unnecessary Credit Inquiries

Applying for loans at multiple places without a strategy can negatively impact your score.

We compare programs from multiple lenders with just one credit pull.

3. A Larger Down Payment Can Help

Generally, the more money you put down, the better your interest rate options may become.

Examples:

- - 3% down → Higher perceived risk
  - 20% down → More stable loan profile
  - 25%+ down → Better terms possible even for investment properties

Also, putting down less than 20% may require PMI (Private Mortgage Insurance), which increases your monthly payment.

4. Compare Rates From Multiple Lenders

Even on the same day, lenders may offer different:

- - Interest rates
  - Fees
  - Discount points
  - Closing costs

That’s why comparing multiple lenders and programs is extremely important.

Rather than contacting just one specific bank, it is often better to work with a trusted mortgage broker company that can compare multiple lender programs and recommend the mortgage product best suited to your situation.

5. Consider Buying Discount Points

In some cases, you can lower your interest rate by paying discount points upfront.

Example:

- - 1 Point = Approximately 1% of the loan amount

However:

- - Your upfront closing costs increase
  - Your monthly payment may decrease over time

This may be beneficial if you plan to stay in the home for a long time. Consulting with a mortgage professional is recommended.

6. Choosing the Right Loan Program Matters

Not all loan programs offer the same interest rates. Consulting with a mortgage professional is recommended.

Examples:

(1) QM Loan

- - - Usually offers the lowest interest rates
    - Uses tax return income documentation

(2) Non-QM Loan

- - - Good for self-employed borrowers or those with lower taxable income
    - Rates may be slightly higher than QM loans
    - However, depending on the situation, Non-QM may still be the better option

(3) FHA Loan

- - - Low down payment option: 3.5%+
    - Flexible credit requirements:
      - Credit score 500–579 → 10% down payment
        
        Credit score 580+ → 3.5% down payment
    - The process can take longer because it is a government-backed program

(4) VA Loan

- - - Benefit for military veterans and eligible service members
    - Often offers very competitive interest rates

7. Shortening the Loan Term (Example: 30 Years → 15 Years)

- - A 15-year mortgage often offers interest rates approximately 0.5%–1.0% lower than a 30-year mortgage.
  - It can significantly reduce the total interest cost and help build home equity faster.
  - Although the monthly payment may be higher, it can save tens of thousands of dollars in interest over the long term.

8. Adjustable-Rate Mortgages (ARM) May Also Be Worth Considering Depending on Your Situation

In general, many borrowers prefer fixed-rate mortgages for stability and long-term home financing. However, depending on your financial situation and future plans, an adjustable-rate mortgage (ARM) may also be worth considering if you expect to move or refinance within approximately five years.

Example:

5/6 ARM
→ Fixed for the first 5 years
→ Interest rate may adjust every 6 months afterward

Advantages:

Lower Initial Interest Rate
ARM loans often begin with a lower rate compared to a 30-year fixed mortgage.

Lower Initial Monthly Payment
Because the starting rate is lower, monthly payments may also be lower in the beginning.

Beneficial for Short-Term Ownership Plans
It may work well if you plan to move or refinance within several years.

Improved Early Cash Flow
Lower payments may help borrowers who want additional cash flow for business investments or other financial goals.

Disadvantages:

Interest Rate May Increase
After the fixed period ends, the rate can increase depending on market conditions.

Monthly Payment May Increase
If rates rise, monthly mortgage payments may also increase.

Less Long-Term Stability
Future housing costs become harder to predict over time.

9. Rate Lock Strategy Is Also Important

Mortgage rates change daily.

Therefore, strategy matters:

- - Should you lock the rate quickly after signing a contract?
  - Or should you wait and monitor the market?

Economic news and Federal Reserve (Fed) announcements can significantly impact rates.

10. Consulting With a Professional Is Important

If you focus only on advertised internet rates, the actual total cost may end up being much higher.

What’s truly important is comparing:

- - The actual rate you qualify for
  - Total loan costs
  - Monthly payment
  - Fees
  - Loan program terms

especially for:

- - Self-employed borrowers
  - 1099 income
  - Investment properties
  - DSCR loans
  - Non-QM loans

because strategy can make a major difference.

Final Thoughts

Getting a lower mortgage interest rate is not just luck — it’s about preparation and strategy.

The following factors are extremely important:

✅ Good credit
✅ Low debt-to-income ratio
✅ Sufficient down payment
✅ Comparing multiple lenders
✅ Choosing the right loan program
✅ Consulting with a professional

If you are planning to purchase a home or refinance, it is important to compare programs and find the option that best fits your situation.

Terry Kwon

Phone: (631) 624-4480

Email: terry@milestonepointinc.com

Funding Director at Milestone Point, Inc.

Licensed Mortgage Originator at Loan Factory

NMLS #2620208

Loan Factory NMLS #320841