How to Find a Mortgage Rate Under 3%

This is a popular time to buy or refinance a home due to record-low rates. People are looking to benefit from those lower interest rates, which makes sense given that just a small drop in interest can save you a ton of money over the life of your loan.

But while interest rates may be low overall, that doesn’t mean that lenders will offer you those bottom-barrel interest rates when you’re buying or refinancing. Mortgage interest rates can — and do — vary depending on a ton of factors, including the lender and borrower’s financial picture.

That said, it’s possible to find a mortgage loan with a rate under 3%, but it’s not always easy to do. Luckily, with a little perseverance and some research, you can improve your chances of getting a mortgage rate under 3%.

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    Current mortgage rates

    The COVID-19 pandemic has vastly affected mortgage rates in recent months. Mortgage rates dropped significantly at the start of the pandemic and they have stayed low since. Rates are expected to stay low through 2021, according to experts.

    As of Oct. 12, the average national 30-year fixed-rate mortgage loan had an interest rate of 3.040%, which is just slightly higher than 3%. Shorter-term mortgages, like the 15-year fixed-rate mortgage loans, were, on average, under 3%, with the 15-year loan at 2.600%. The 10-year fixed-rate average was 2.630%, which is also well under 3%. So, if you want to snag a loan with a rate under 3%, your best bet is to look at the shorter-term mortgages.

    But while most experts predict that mortgage rates will stay low for the near future, about 27% of experts say they are likely to rise in the next few months. That means if you’re trying to get a mortgage with a 3% interest rate, this is probably the best time to try. Otherwise, interest rates could increase again.

    [ Read: Best Mortgage Rates ]

    How to lower your mortgage rate by refinancing

    Refinancing your mortgage is a popular way to reduce your monthly costs and access a better interest rate. With interest rates considerably lower this year than in years prior, it makes sense for many homeowners to refinance. 

    There are several ways you can better your chances of lowering your mortgage rate by refinancing at a rate under 3%, including:

    • Working on your credit score — One of the ways to access the lowest mortgage rates is to improve your credit score. This could mean clearing consumer debts, lowering your credit utilization or building some positive credit history with a new credit card.
    • Buying mortgage points — To secure a lower interest rate when you refinance, you can buy points on your mortgage. This is an upfront fee that usually amounts to about 1% of your mortgage loan principal, but each point can reduce your interest rate by as much as 0.25% in return. This might not seem like much, but over the course of your mortgage, you could save thousands of dollars in interest.
    • Choosing a shorter-term mortgage — For those who wish to reduce their overall interest payments, the best thing to do is pay off your mortgage sooner. The simple way to do this is to refinance to a shorter loan term, such as going from a 30-year to a 15-year mortgage. The downside is that your monthly payments will be higher, but you will pay off your mortgage faster — and with less interest.
    • Shopping around — Lenders can offer vastly different rates, so one of the best ways to snag a 3% interest rate is to shop around. Averages are just that — averages — so be sure to do your homework and compare multiple lenders. It’s the only way to get the lowest rate possible.

    Making the right decision for your income

    Refinancing your mortgage to take advantage of low interest rates needs to be a decision that’s carefully weighed prior to making it. It’s tempting to focus only on the savings and rush into a refinance, but your unique circumstances need to be carefully considered.

    Your income needs to be one of the primary factors weighed for any mortgage decisions. Just because you can save money with your refinance doesn’t mean it’s the best idea for you — especially if you’re refinancing to a shorter loan term to get the lower interest rates. If your income can’t keep up with higher monthly payments, then you will need to reconsider shorter-term refinancing.

    The same thing goes if you’re purchasing a home. Opting for a shorter-term mortgage will probably get you the lower interest rate you’re looking for, but if you can’t keep up with the payments, you run the risk of going into default or forbearance.

    On the other hand, if your income is high enough to swing it, opting for a shorter-term mortgage could be the smartest move to save on interest rates.

    How to strengthen your credit score

    To obtain a lower rate on your new mortgage, your credit score needs to be as high as possible. An ideal score is above 800, but anything over 720 is considered a good score.

    Before you apply for a new mortgage, though, you should try these steps to strengthen your credit — even if your score is decent.

    • Pay off outstanding debt on credit cards or personal loans — This should be your first priority to boost your credit score. Make sure you are trying to clear your existing debt as quickly as possible and are not just making the minimum payments. 
    • Check your credit report for any errors — Sometimes errors will make their way onto your credit report, and the sooner you know about this, the sooner you can fix it. Checking your credit report will also help you catch any instances of identity theft, such as someone taking out a credit card in your name.
    • Lower your credit utilization — You can do this in a few ways. You could open a new credit card (and use it wisely) or you could ask to increase your credit limit on your existing cards.
    • Build more credit history — Spending more on credit may seem counterproductive, but as long as you are paying off the balances on time and in full, spending on credit cards can actually be a good thing.

    Things to keep in mind 

    Opting for a new mortgage loan right now — whether for a purchase or refi — could be a great way to save on interest. However, there are a few things to keep in mind.

    The first is that the interest rates that you will actually receive will depend on other factors such as your credit score, loan-to-value ratio, loan amount and the type of mortgage you opt for. The best plan of action is to check your credit score, make any adjustments to try and improve it and then do some thorough research on mortgage rates and lenders.

    Once you feel ready, it’s worth talking to a few different lenders to see what type of mortgage deal and interest rate you will get. You want the savings to outweigh the costs of refinancing and closing on a new mortgage. That means you’ll also need to take the new closing costs into account. You can end up spending more on your refi loan than you save if you aren’t careful, so make sure you take those extra costs into account as well.

    [ Read: Why Not Walk Away from Any Mortgage? ]

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    Kara Copple

    Contributing writer

    Kara Copple is a writer who specializes in business, finance and marketing industries.

    Reviewed by

    • Angelica Leicht
      Angelica Leicht
      Mortgage Editor

      Angelica Leicht is an editor at The Simple Dollar who specializes in mortgages, mortgage refinancing, home equity loans, and HELOCs. She is a former contributing editor to and