Follow us:
  1. Home
  2. Mortgages
  3. Types of mortgage rates

Types of mortgage rates

Profile picture of Danni White
by Danni White ConsumerAffairs Research Team

The following company participates in our Accreditation Program: Amerisave, Caliber Home Loans, ClearPath

couple holding keys in front of new home

If you plan to buy a home, you will most likely need to obtain a mortgage. A good starting point for understanding mortgages is to know the different types of mortgages available and the associated types of mortgage rates. Mortgage rates fluctuate, but having a base understanding can help you through the home buying process.

What is a mortgage rate?

Buying a home is a very exciting moment in life, but figuring out the necessary financial resources can be overwhelming. While there are several options to get you on the path to homeownership, you will likely need to know about mortgage loans to get there. It’s helpful to know the basic terminology, advantages and disadvantages of different mortgages when comparing loans. Once you have done the homework, it gets easier to arrange the down payment and set a budget for your dream home.

A mortgage rate is the interest that is charged on a mortgage. It is typically set by lenders and can stay fixed or fluctuate, depending on conditions in a mortgage agreement. Mortgage rates vary over time, and your credit score has a significant impact on the rate you receive. Mortgage rates rise and fall by interest rate cycles and can affect the overall home market.

Types of mortgage rates

There are two main types of mortgage rates: adjustable-rate mortgages and fixed-rate mortgages.

Adjustable-rate mortgage

An adjustable-rate mortgage (ARM) is a mortgage with an interest rate that changes throughout the loan period. Only the initial interest rate is fixed in an adjustable-rate mortgage. After the completion of a specified period, the interest rate can increase, decrease or reset on a monthly or yearly basis. 

The interest rate of an adjustable-rate mortgage usually depends on the margin as well as the index or benchmark. The benchmark or index depends on the type of loan, but, in most cases, it is aligned to the federal funds rate or the London Inter-Bank Offered Rate (LIBOR). Adjustable-rate mortgages are also called floating mortgages or variable-rate mortgages.

Fixed-rate mortgage

A fixed-rate mortgage refers to a fixed interest rate on a mortgage loan throughout the payment period. This means that the interest rate is the same from the beginning until the mortgage is paid off. Terms for fixed-rate mortgages vary between 10 to 30 years. It is a popular choice for homebuyers because they get to know how much they would have to pay per month or year.

What factors impact mortgage rates?

There are several factors that affect mortgage rates. The top factors are:

Credit scores
If you have a higher credit score, you are more likely to receive a lower interest rate. If you have a lower credit score, the interest rates will be higher. Lenders use credit scores to determine the reliability of a borrower.

The decision depends on your credit report, which shows your payment history, debts and loans. If you have a low credit score, it can prevent you from qualifying as a reliable borrower.

Total home loan amount
The amount you would borrow as a mortgage loan Is the price of the home minus the closing costs and down payment in most cases. The closing costs may be included in the mortgage loan, however.
Home location
Most of the lenders take the state or your home location into consideration before deciding on the interest rate. If you are interested in getting a rough idea of your potential rates, talk to multiple lenders in your area.
Interest rate type
There are two basic types of mortgage rates: adjustable and fixed. Fixed interest rates do not change throughout the loan repayment period, while adjustable or floating rates change with the market.
Loan type
Some broad categories of loan types are VA, USDA, conventional and FHA loans. Each type has different eligibility criteria and requirements. Mortgage lenders can help you determine which loans you’re eligible for and the best one for your situation.

Rates heavily depend on the type of loan you and your lender choose. That’s why it is good to research about all types before making a commitment.

Loan term
The loan term is the time in which you have to repay the loan. For instance, if you have less time to repay the loan, the interest rate would be low. But this also means higher monthly payments.

What are the best mortgage rates?

Choosing the right mortgage loan plan is important — home loans are likely the largest loans you’ll apply for. Getting the best interest rate is not as simple as it seems.

The variety of mortgage loan companies urge you to expand your search and choose the best mortgage rate for your house.

We started out by comparing 30 mortgage loan companies and selected our three favorites based on customer reviews and offerings. Below, we compare the rates and loan amounts for these picks.

Amerisave

amerisave logo
Logo
DETAILS
  • Minimum credit score requirement of 600
  • USDA, VA, fixed, purchased, ARM and refinance loans

Read reviews

Amerisave is good if you’re planning to apply for a government loan. It gives you credit flexibility, letting you buy a home with a lower down payment. Amerisave offers a number of loan products and does a soft inquiry on your credit report.

To qualify as a borrower, you must have a down payment that’s a minimum of 3% of the total home price. The company’s loan origination fee is slightly higher than the national median.

ClearPath

clearpath logo
Logo
DETAILS
  • Minimum credit score requirement is 580
  • Adjustable and fixed rate loans

Read reviews

ClearPath is known for their fixed-rate mortgage loans that let people pay the same amount for the entire loan term. Its adjustable mortgage rates change with the national index rate. To prequalify for the loan, you must have a down payment equal to 3.5% of the total home price.

Caliber Home Loans

caliber home loans logo
Logo
DETAILS
  • Minimum credit score of 620
  • Fixed, ARM, VA, FHA and USDA refinance loans

Read reviews

Caliber offers a range of government-backed and conventional home loans. It is good for veterans and first-time homebuyers who might have credit scores to improve. While it does not offer home equity loans, you must have 3% of the total home price as a down payment.

What to know before applying for a mortgage loan

Applying for a mortgage is not the simplest thing in the world. When you do not know what to expect, it can be complex and frustrating. Doing your homework on the front end to answer any questions is always a good idea. With the right information, you’re better equipped to get the best rate possible. Here are four things you should do when applying for a mortgage loan:

  • Know how much you can spend
  • Research everything about the current homebuyers’ market
  • Compare the interest rates given by multiple lenders
  • Know your options for a loan and find the best lender

What to do if you’re not approved

It is important to understand that you can be denied for a home mortgage loan for a variety of reasons. However, you don’t have to let that stop you from trying again. If you have not been approved for a home mortgage loan, there are several things you can do to increase your chances of being approved next time:

  • Lower your debt-to-income ratio
  • Save 20% for a down payment
  • Ensure your employment is steady
  • Avoid risky moves after prequalification
  • Do not give misleading information

Advantages and disadvantages of a mortgage loan

Here are some proven pros and cons of having a mortgage loan:

Advantages

  • Makes homeownership possible for many people
  • Cost-effective way to borrow

Disadvantages

  • A high interest rate if you have a low credit score
  • Repaying more (counting interest) than you borrowed

Mortgage rates FAQ

What is a good APR for a mortgage?
Whether you are getting a good APR depends on what type of loan you are getting, your credit score and your credit history. It is difficult to be certain of what a good APR is because it varies over time. Lenders can help you understand what is best based on a range of factors.
Which type of mortgage loan would be best for someone having a fixed salary?
If you have a fixed salary, it is a good idea to talk with a mortgage lender so you can understand what type of mortgage would work best for your salary range. Just because a fixed-rate mortgage has an interest rate that does not change throughout the payment plan does not always mean it is the right one for you.
Is 4.6% a good mortgage rate?
Generally, 4.6% is a decent low-interest rate that could potentially save you thousands of dollars. However, it is important to note that a good rate depends on several factors, such as your credit rating, loan type and location.
What is the easiest mortgage to get?
Government-backed loans tend to have more lenient rates and terms than other mortgage types. But homebuying is a very customizable process, and you might find that one loan works for you better than another one.
Can I refinance my mortgage with no closing costs?
A no-closing cost refinance is a refinance where you do not have to pay any closing costs on a new loan. While it is possible to refinance with no closing costs, it is important to note that no upfront costs does not mean zero costs. The costs you would pay typically are moved to your principal.

Bottom line

Before moving forward with any type of mortgage, consider your financial situation and credit score carefully. Review your down payment, repayment plan and resources before moving forward with the decision to take a mortgage loan. Research thoroughly so you know which mortgage type will work the best for you.

Did you find this article helpful? |
Share this article
Profile picture of Danni White
by Danni White ConsumerAffairs Research Team

As a member of the ConsumerAffairs research team, Danni White is committed to providing valuable resources designed to help consumers make informed purchase decisions. Danni specializes in content strategy and development, with over a decade of professional writing and research experience.