Strategies to Get the Lowest Mortgage Rate Every First-Time Home Buyer Should Know

Locking in the lowest mortgage rate can make a huge difference in your financial future, especially for first-time home buyers. Not only does a lower rate reduce the total amount of interest you’ll pay over the life of the loan, but it can also lead to more manageable monthly payments—potentially saving you thousands of dollars.

Whether you’re in the early stages of your home-buying journey or ready to make an offer, these strategies can help you secure a competitive mortgage rate.

What Determines Your Mortgage Rate?

Before jumping into the strategies, it’s important to understand what influences mortgage rates. Whether you’re eligible for the lowest rates depends on factors such as your credit score, down payment size, loan term, and market conditions. Fixed and adjustable-rate mortgages also come with different rate structures.

With this in mind, here are expert-approved strategies to help you lock in a better rate.

1. Buy Discount Points to Lower Your Rate

Discount points, sometimes known as “mortgage points,” allow you to prepay some of your loan’s interest upfront in exchange for a lower ongoing mortgage rate. Essentially, you’re paying more at closing to save over the life of the loan.

Here’s how it works:

• One discount point equals 1% of your loan amount.
• Each point typically lowers your interest rate by about 0.25%.

For example, if you’re borrowing $300,000, buying one point would cost $3,000 and could reduce your rate from 6.5% to 6.25%.

Expert Insight: "For first-time homebuyers planning to stay in their homes long-term, buying discount points can be a savvy financial decision," says Sue Hughes, Mortgage Operations Manager. "The key is calculating your breakeven point—the time it takes for your upfront investment to pay off in savings."

2. Consider an Interest Rate Buydown

An interest rate buydown is another way to reduce your mortgage rate in the short term. With this strategy, the seller or lender covers part of the upfront cost to temporarily lower your rate, typically for the first few years of your loan

For example:

• A 2-1 buydown might reduce your rate from 6.5% to 4.5% in year one, 5.5% in year two, and back to 6.5% for the rest of the term.

This is an excellent option in a higher interest rate environment, giving buyers time to adjust to their full loan obligations or refinance if rates decrease.

Expert Insight: "Rate buydowns provide first-time buyers with some breathing room as they settle into homeownership," advises Sami Haggerty, Mortgage Loan Advisor. "However, it’s crucial to plan ahead for when the rate resets."

3. Explore Adjustable-Rate Mortgages (ARMs)

An adjustable-rate mortgage (ARM) can offer a lower fixed interest rate during its introductory period, which usually lasts five to 10 years. After that, the rate adjusts periodically, based on market conditions. ARMs are ideal for buyers who plan to sell or refinance before the initial period ends.

For example:

• A 5/1 ARM has a fixed rate for the first five years, adjusting annually afterward.

Expert Insight: "Adjustable-rate mortgages can be a smart choice for buyers anticipating improvements in their financial situation or future interest rates," says Jonathan Tieszen, Senior Mortgage Loan Advisor. "However, it's important to consider the potential risk of rate increases once the fixed period ends."

4. Opt for a Shorter-Term Mortgage

If your goal is to pay as little interest as possible, choosing a shorter-term mortgage—such as a 15-year fixed loan—can significantly lower your interest rate. Because lenders face less risk with shorter terms, they tend to offer lower rates compared to 30-year loans.

While the monthly payments may be higher, the total cost over the life of the loan will be considerably lower.

Expert Insight: "First-time buyers who can comfortably manage higher monthly payments should consider a 15-year mortgage," says Annie King, Mortgage Loan Advisor. "It allows you to save significantly on interest while building equity at a faster pace."

5. Assume an Existing Mortgage

An assumable mortgage allows you to take over the seller's existing home loan, including their interest rate, rather than securing a new one. This can be an attractive option if the seller has a significantly lower rate than what’s currently available in the market.

Types of loans that can be transferred include FHA, VA, and USDA loans, though you’ll need to meet eligibility requirements from the lender.

Expert Insight: "Assumable mortgages can be a game-changer for homebuyers in today’s high-interest environment," says Sue Hughes, Mortgage Operations Manager. "Just make sure the loan amount fits your budget, and the remaining term aligns with your long-term goals."

Bonus Tips for First-Time Home Buyers

• Improve Your Credit Score
  The higher your credit score, the better your mortgage rate. Pay down debts, avoid opening new lines of credit, and review your credit report for errors before applying for a loan.
• Shop Around and Compare Lenders
  Different lenders offer different rates and terms, so it’s worth getting quotes from several to find the best deal.
• Save for a Larger Down Payment
  A down payment of 20% or more can help you qualify for lower rates since it reduces the lender’s risk.
• Stay Updated on Market Trends
  Keep an eye on interest rate trends, as timing your mortgage application could lead to savings.

Why the Lowest Mortgage Rate Matters

Securing the lowest mortgage rate isn’t just about saving money—it’s about setting yourself up for long-term financial stability. Even a small difference in rates can translate into significant savings over time, allowing you to invest in other goals or build your emergency fund.

For instance, on a $300,000 loan, reducing your interest rate by 0.5% could save you over $25,000 in interest over 30 years.

Take Charge of Your Mortgage Journey

Navigating the mortgage process doesn’t have to be overwhelming. With the right knowledge and expert strategies, you can confidently secure the best rate and make homeownership more affordable. From buying discount points to choosing a shorter term or exploring assumable mortgages, you have options to shape your path.

Still have questions or need personalized guidance? Connect with one of Park View’s trusted mortgage advisors to find the solution that fits you best. Meet our team and explore loan options at pvfcu.org/mortgage.