Your mortgage rate determines how much interest you will pay over the life of your loan. Even a 0.5% difference in rates can mean tens of thousands of dollars. Understanding how rates work, what influences them, and how to lock in the best rate for your situation is essential knowledge for every South Jersey home buyer.
Mortgage rates change constantly. They are influenced by everything from Federal Reserve policy to inflation data to global economic events. For buyers, trying to time the market is a losing game. What matters more is understanding the decisions you can control: whether to choose a fixed or adjustable rate, whether to buy discount points, and when to lock your rate.
This guide explains everything you need to know about mortgage rates, with a focus on what matters most to buyers in Burlington County and South Jersey.
Fixed-Rate Mortgages: Predictable and Stable
A fixed-rate mortgage locks in your interest rate for the entire term of the loan. Whether you choose a 15-year, 20-year, or 30-year fixed-rate mortgage, your monthly principal and interest payment will never change.
Advantages of fixed-rate mortgages:
- Predictable monthly payments that never change
- Protection against future rate increases
- Easy to budget for the long term
- Most popular choice for primary residences
Disadvantages:
- Rates are typically higher than adjustable-rate mortgages at the start
- You cannot benefit from falling rates without refinancing
Fixed-rate mortgages are the most popular choice for home buyers, and for good reason. In South Jersey, where most buyers plan to stay in their homes for 5 to 10 years, the predictability of a fixed rate is a major advantage. If you plan to stay in your home for more than 5 years, a fixed-rate mortgage is almost always the right choice.
Adjustable-Rate Mortgages (ARMs): Lower Initial Rates
An adjustable-rate mortgage (ARM) has an initial fixed-rate period (typically 5, 7, or 10 years), after which the rate can adjust periodically based on market conditions. ARMs are often called 5/1, 7/1, or 10/1 ARMs, where the first number is the fixed-rate period and the second is how often it adjusts after that.
Advantages of ARMs:
- Lower initial interest rate (typically 0.5% to 1% lower than fixed rates)
- Lower monthly payments during the fixed period
- Good option if you plan to sell or refinance before adjustments begin
Disadvantages of ARMs:
- Rate can increase after the fixed period ends
- Monthly payments can rise significantly
- More complex to understand than fixed-rate loans
- Risk of payment shock if rates rise substantially
ARMs are not the right choice for everyone, but they can be a smart strategy in certain situations. If you know you will only be in the home for 5 to 7 years, a 7/1 ARM could save you thousands of dollars compared to a 30-year fixed. Many South Jersey buyers who are relocating for work or planning to upgrade within a few years benefit from ARMs.
What Determines Your Mortgage Rate?
Your mortgage rate is influenced by two categories of factors: market conditions (which you cannot control) and personal financial factors (which you can).
Market factors you cannot control:
- Federal Reserve monetary policy (the Fed funds rate influences short-term rates)
- Inflation (higher inflation typically leads to higher mortgage rates)
- Economic growth (strong growth can push rates higher)
- Bond market yields (mortgage rates often follow 10-year Treasury yields)
- Global economic events (recessions, geopolitical events, etc.)
Personal factors you can control:
- Credit score. This is the single biggest factor in your personal rate. A 740+ credit score typically gets the best rates. A 620 score may get a rate 1% to 2% higher.
- Down payment. Larger down payments usually result in better rates because the lender's risk is lower.
- Loan type. FHA and VA loans often have lower rates than conventional loans, but they come with other costs like mortgage insurance.
- Loan term. 15-year mortgages have lower rates than 30-year mortgages, but higher monthly payments.
- Property type. Owner-occupied primary residences get the best rates. Investment properties and second homes have higher rates.
Discount Points: Buying Down Your Rate
Discount points, also called mortgage points, are a form of prepaid interest. One point costs 1% of your loan amount and typically lowers your rate by 0.25% (this varies by lender and market conditions).
For example, on a $350,000 loan, one point costs $3,500 and might lower your rate from 6.5% to 6.25%. Whether this is worth it depends on how long you plan to stay in the home.
How to calculate your break-even point:
- Monthly savings from the lower rate: approximately $55 per month (on a $350,000 loan)
- Cost of the point: $3,500
- Break-even period: $3,500 / $55 = approximately 64 months (about 5.3 years)
If you plan to stay in the home longer than the break-even period, buying points makes financial sense. If you plan to move or refinance before that, points are not worth it.
There is also the option of lender credits, which work in reverse. You accept a higher rate in exchange for the lender covering some of your closing costs. This can be helpful if you are short on cash for closing. A general rule: if you plan to stay in your home for more than 5 years, consider buying points. If you plan to stay for less than 5 years, consider a lender credit instead.
Rate Locks: When and How to Lock Your Rate
A rate lock is a lender's guarantee that your interest rate will not change between the time you lock and the time you close. Locks typically last 30 to 60 days, though some lenders offer longer locks (up to 90 or 120 days) for a fee.
When should you lock your rate?
- Lock when you are comfortable with the current rate and do not want to risk it rising
- Lock when you have an accepted offer and a closing date within 30-45 days
- Consider locking if rates are trending upward
- Consider floating if rates are expected to drop and you have time before closing
Most lenders allow you to lock your rate once you have a signed purchase agreement. Some lenders also offer a "float-down" option, which allows you to lock at a current rate and then get a lower rate if rates drop before closing. This usually costs extra.
In a volatile rate environment, locking early provides peace of mind. Even if rates drop after you lock, you locked in a rate you were comfortable with, and that certainty has value.
How to Get the Best Mortgage Rate
Getting the best rate is not about timing the market. It is about putting yourself in the strongest possible position as a borrower:
Improve your credit score. Check your credit reports for errors, pay down credit card balances, and avoid opening new credit accounts in the months before you apply. A 740+ score unlocks the best rates.
Shop multiple lenders. Rates can vary significantly between lenders. Get quotes from at least 2 to 3 lenders and compare not just the interest rate but the APR (which includes fees and closing costs). The Consumer Financial Protection Bureau recommends shopping around, and it can save you thousands.
Consider a shorter loan term. 15-year mortgages have lower rates than 30-year mortgages. If you can afford the higher monthly payment, a 15-year term can save you a fortune in interest.
Increase your down payment. A larger down payment reduces the lender's risk and often results in a better rate. Even moving from 5% to 10% down can make a difference.
Choose the right loan type. VA loans typically offer the best rates for eligible borrowers. FHA loans often have competitive rates. Conventional loans may have slightly higher rates but lower overall costs.
How Much Does a 0.5% Rate Difference Really Matter?
Let's look at the numbers for a $350,000, 30-year fixed-rate mortgage in Burlington County:
| Interest Rate | Monthly Payment | Total Interest Paid |
|---|---|---|
| 6.0% | $2,099 | $405,640 |
| 6.5% | $2,212 | $446,320 |
| 7.0% | $2,328 | $488,080 |
| 7.5% | $2,447 | $530,920 |
As you can see, a 1% difference in rate on a $350,000 loan means about $229 per month and over $82,000 in total interest over 30 years. That is why shopping for the best rate and improving your credit score before applying is so important.
Frequently Asked Questions
Should I get a fixed-rate or adjustable-rate mortgage?
If you plan to stay in your home for more than 5 years, a fixed-rate mortgage is usually the better choice for its predictability. If you plan to move or refinance within 5-7 years, an ARM can save you money with its lower initial rate. Most South Jersey buyers choose fixed-rate mortgages for peace of mind.
When is the best time to lock my mortgage rate?
Lock your rate when you have an accepted offer and are comfortable with the current rate. If rates are trending upward, lock sooner. If rates are volatile, consider paying for a longer lock period (60-90 days) to protect against increases. Some lenders offer float-down options if rates drop after you lock.
Are discount points worth buying?
Points are worth it if you plan to stay in the home beyond your break-even point (typically 4-6 years). If you plan to move or refinance sooner, the upfront cost of points will not pay off. Your lender can calculate the break-even period for your specific loan amount and rate.
How much can I improve my rate by raising my credit score?
Raising your credit score from 620 to 740+ could lower your rate by 1% to 2%, depending on the lender and market conditions. On a $350,000 loan, that could save you $200 to $400 per month. The best rates are reserved for borrowers with scores of 740 or higher.
Should I wait for rates to drop before buying?
Trying to time the market is risky. If rates drop in the future, you can refinance. But if you wait for lower rates, you risk prices rising further or rates going up instead of down. The best strategy is to buy when you are financially ready and can afford the monthly payment at today's rates. You can always refinance later if rates improve.
Have Questions About Today's Rates?
Mortgage rates change constantly, and what is available today may not be available tomorrow. I work with trusted local lenders who can give you a personalized rate quote based on your specific situation. No pressure, just honest information.
Reach out anytime, and I will connect you with the right people to explore your options.
Bob Millaway
Redfin Senior Agent · AI Certified Agent · 636+ homes sold across Burlington County and South Jersey. Licensed NJ Salesperson #791082.