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When people ask what rates are, the honest answer is: it depends. Your rate is not a single number pulled from a board — it is a combination of market conditions and personal financial factors that lenders weigh together. Understanding what drives each element gives you real leverage before you ever submit an application.
Your credit score: the biggest lever you control
Lenders use your credit score to price risk. Borrowers with scores above 740 typically qualify for the best pricing tiers. Each step down — from 739 to 720, from 719 to 700 — can add roughly 0.125% to 0.375% to your rate. Over the life of a 30-year loan, that difference compounds into tens of thousands of dollars.
What to do
Pull your credit 3–6 months before applying. Pay down revolving balances to below 30% of your credit limit on each card. Avoid opening new accounts. Even a 20-point improvement can move you into a better pricing tier.
Loan-to-value ratio: how much equity you bring
Your LTV is the loan amount divided by the home's value. A $340,000 loan on a $400,000 home is 85% LTV. Lenders see higher LTV as more risk — if you default, there's less cushion. Conventional loans at 80% LTV or below typically avoid PMI and receive better rate pricing. Going from 90% LTV to 80% by adding to your down payment can noticeably lower both your rate and your monthly payment.
Loan type: VA, USDA, FHA, and Conventional
Government-backed loans often carry lower rates than conventional loans because the government guarantees lenders against default. VA loans (for eligible veterans and service members) frequently offer the most competitive rates with no down payment required. USDA loans for eligible rural properties come close. FHA loans have a lower credit floor but include mortgage insurance premiums that add to the true cost. Conventional loans are flexible but require stronger credit and reserves for the best pricing.
The 10-year Treasury: your invisible co-signer
Mortgage rates move in loose correlation with the 10-year U.S. Treasury yield. When bond investors expect inflation or economic growth, yields rise and mortgage rates follow — typically within days. When the economy softens or the Fed signals rate cuts, yields fall and mortgage rates tend to ease. You can't control the market, but understanding this relationship helps you interpret the news and anticipate movement instead of being surprised by it.
Loan term: 30-year vs. 15-year
A 15-year loan typically prices about 0.50% to 0.75% lower than a 30-year loan. You build equity faster and pay far less total interest — but the monthly payment is significantly higher for the same loan amount. The 30-year loan gives you flexibility: you can always pay extra principal, but you're not required to. Which term makes sense depends on your cash flow, your financial goals, and how long you plan to stay in the home.
Points: buying a lower rate
One discount point costs 1% of the loan amount and typically buys the rate down by about 0.25%. On a $400,000 loan, one point costs $4,000. If that saves you $60/month, you break even in about 67 months — just over five years. If you plan to stay longer, buying points can make mathematical sense. If you're likely to sell or refinance in 3–4 years, paying points is often a losing trade.
The best rate is not always the lowest number on the page. A rate with heavy discount points may cost more than a slightly higher rate with fewer fees. Ask for a loan estimate on multiple scenarios and compare the APR — which includes fees — not just the interest rate.
Property type adds a premium
Investment properties and second homes are priced higher than primary residences because lenders view them as higher risk. An investment property loan can carry a rate premium of 0.50% to 1.50% over a comparable primary residence loan. Multi-unit properties (2–4 units) also carry premiums, though some programs allow owner-occupants to use rental income to qualify.