How to Find the Cheapest Mortgage

Mortgage rates have risen sharply. Here's how to shop for one now.

Multiple houses relay a mortgage concept Illustration: Getty Images

With mortgage interest rates hitting heights not seen for years, home buyers are going to have to think and act more strategically than ever to get a deal on that all-important loan, experts say.

Average 30-year fixed mortgages recently exceeded 5 percent, according to Mortgage News Daily, which tracks daily, real-time changes in lenders’ rates. That’s an interest rate not seen since 2011, save for a couple of days in 2018. And that rate is 1.75 percentage points higher than it was at the beginning of the year.

“This has been the fastest and sharpest run-up in mortgage rates in 28 years,” says Greg McBride, chief financial analyst at Bankrate, a financial information website. “It’s akin to a 17 percent increase in home prices, just since January.”

Those higher rates, spurred by inflation, the Russia-Ukraine war, and recent moves by the Federal Reserve, might be enough to deter some would-be home shoppers—especially when combined with an average 32.3 percent increase in home prices since last year, as reported by Zillow. But McBride and others say there’s still plenty of appetite in the real estate market, so if you want to stay in the game, you’ll need tactics to get the best mortgage possible.

Here are the steps you should take to find the lowest-priced loan available.

Clean Up Your Credit

Before you go shopping for a mortgage, make sure your credit reports contain no mistakes—and fix them if they do. Those reports include information that goes into your credit score, a key determinant of the rate you’ll get. Incorrect, negative information could have an impact on your ability to get the lowest rate.

Go to AnnualCreditReport.com for free copies of credit reports from the nation’s three major credit reporting bureaus, Equifax, Experian and Transunion. You’re entitled to this free information once a year.

Typically, banks require applicants to have a credit score of 740 to qualify for the most competitive rates, McBride says. Check our tips on how to improve yours.

Choose a Fixed- or Adjustable-Rate Loan

If you’re planning to stay in your home for at least a decade, a 30-year fixed-rate loan—with relatively low monthly payments—is your best bet.

If you can afford higher payments and want to dispense with the debt sooner, consider a 15-year fixed. It features a lower interest rate and could save you thousands over the life of the loan. 

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Another option is to choose a shorter-term adjustable-rate mortgage. These mortgages feature lower rates for an introductory period, then a higher rate. On a 7/1 adjustable, for example, the rate remains fixed for seven years. After that period, it can adjust based on market rates but can only increase a maximum of 5 percentage points above the original rate.

If you’re planning to be in your home for years to come, this might not be the best option, especially if interest rates continue to trend higher. “You don’t want to be in a position where your adjustable-rate mortgage begins to adjust and you’re susceptible to a large payment increase,” McBride says.

McBride says these loans are more risky than they’ve been in the past because their rates will change every six months. Until recently, rates changed once a year, but the banking industry is currently changing the financial index on which they are based in favor of an index that changes more frequently.

Shop for a Loan

Shop for a mortgage at a variety of lenders, including banks; mortgage brokers; online originators, such as Quicken Loans; and aggregators, like LendingTree. Go to their websites and fill out preliminary forms to get interest rate estimates immediately or calls from company representatives who can quickly get quotes for you. You can also go to Bankrate to compare mortgage rates and find the best deals.

When we did that, we quickly found lower rates at various banks. Bankrate’s average mortgage rates, gleaned from among more than 100 banks, averaged 4.88 percent, but online mortgage broker Morty was advertising a 30-year fixed loan with an annual percentage rate (APR) of 4.285 percent. Wells Fargo was offering a 30-year fixed-rate mortgage with an APR of 4.625 percent. (Freddie Mac, the quasi-government agency that buys and bundles mortgages and sells them to investors, put the current average 30-year fixed-rate at slightly below 5 percent.)

Another option is to find a phone number on the lender’s website and call directly. We found that you can get pretty accurate estimates over the phone. If you want a quote that could lead to a firm offer, you’ll need to give the lender your Social Security number.

Before you start looking at lenders, decide what kind of home you’re interested in and the type of mortgage you want. You’ll also need to tell the lender where you are in the process. Are you just starting to shop for a home, or do you have an accepted offer or a signed contract?

Once you start filling out loan applications, you’ll be expected to verify many aspects of your financial and personal life. Ensure that this part of the process proceeds seamlessly by having all your essential paperwork in hand. Refer to Zillow’s checklist of what’s usually required.

Ask each lender about a “float down” option on your mortgage, says Keith Gumbinger, vice president of HSH, a mortgage information website based in Riverdale, N.J.. With this option, your mortgage rate drops before closing if interest rates fall—even if you’ve already locked in the rate. Though the feature usually requires a fee—perhaps $500—it can save you big if interest rates retreat. “Float-downs are not uncommon, but folks have to ask about them,” Gumbinger says.

Look at Smaller Lenders

In addition to considering a mortgage from the big banks and online lenders, research smaller, lower-profile players such as credit unions and community banks.

Search online with the name of your home state and terms like “community bank mortgage,” “S&L mortgage,” and “credit union mortgage.”

We found some competitive options this way. Not too far from Consumer Reports’ Yonkers, N.Y., headquarters, Maspeth Federal Savings in Maspeth, N.Y., was showing an annual percentage rate of 4.008 percent for a conventional 30-year fixed loan. Cleveland-based Third Federal Savings & Loan was showing a 30-year fixed-rate conventional loan with an APR of 4.47 percent.

Gumbinger says these smaller lenders typically have better rates for adjustable-rate mortgages and offer better terms and rates to people with variable income streams, like the self-employed. That’s because they often don’t sell those loans in the secondary market as larger banks do, Gumbinger says: “Because lenders are putting these loans on their books, they can price them any way they wish.”

Consider a Mortgage Broker

A mortgage broker can shop among many lenders and get better rates than you might on your own. But be aware that brokers get paid by the banks, not you, so check them out carefully.

“If you go the mortgage broker route, get recommendations from friends or colleagues who have had a good experience with a particular mortgage broker in the past,” McBride says.

Like smaller lenders, mortgage brokers can be helpful for individuals whose income is variable. “They specialize in situations that fall outside of the mainstream,” Gumbinger says.

You can use the website findamortgagebroker.com to help you get a broker. 

Understand the CFPB Loan Estimate

Once you’ve seen some attractive rates from a few lenders, ask each for a Loan Estimate. This is a standard document designed by the CFPB to help you compare mortgages. You can even use it to compare different types of loans—say, a 30-year fixed loan and a 10-year adjustable-rate mortgage.

To get a Loan Estimate, you’ll need to provide documentation of your income and assets, among other items. And you’ll need to supply your Social Security number so the lender can research your credit history.

Get Loan Estimates from as many lenders as you can. Multiple inquiries on your credit records will not lower your credit score as long as they all come within a 45-day period and are for the same product—a home mortgage, for instance. They’re all considered one inquiry under these circumstances, the CFPB says, letting you shop around without damaging your credit.

If possible, get all the Loan Estimates on the same day, so you can make accurate comparisons. The Loan Estimate offers three key figures you can compare among lenders: the annual percentage rate, the interest rate and principal accrued after the first five years of the loan, and the “total interest percentage,” that is, the total amount of interest you’ll pay over the loan term as a percentage of your loan amount.

Ron Haynie, senior vice president of mortgage finance policy at Independent Community Bankers of America in Washington, D.C., recommends also focusing on the first page of the report, which shows an estimate the amount of cash needed at closing. “This will give you an idea of how much money you will need to bring to the settlement,” he says. 


Tobie Stanger

I cover the money side of home-related purchases and improvements: avoiding scams, making sense of warranties and insurance, finding the best financing, and getting the most value for your dollar. For CR, I've also written about digital payments, credit and debit, taxes, supermarkets, financial planners, airlines, retirement and estate planning, shopping for electronics and hearing aids—even how to throw a knockout wedding on a shoestring. I am never bored. Find me on Twitter: @TobieStanger