A Guide to Home Loan Rates

The single largest financial investment most people will undertake is purchasing a home, yet very few fully understand how home loans and mortgage interest rates work. Not all home loans are the same and understanding the differences will help you understand what is right for your situation and what to expect during the home loan process. Let’s walk through some common questions and tips to keep in mind about home loan rates, different types of loans, securing the best loan rate, finding the right lender and preparing for a future home purchase.

What are home loan interest rates?

Home loan interest rates are the rate charged by a lender to borrow money to purchase a home. Home loan rates can vary, are set by the lender and can have either fixed or variable interest rates. Keep in mind, the higher the interest rate, the more interest you will pay over the term of the loan.

Why are there different rates?

Most lenders base interest rates on a risk-based pricing model, so the more risk on a loan, the higher the interest rate will be. Risk factors are based on the borrower’s profile and the asset and can include anything from credit scores, debt to income ratio, length of credit, amount of equity, amount of down payment and more.

What type of mortgages are there?

When choosing your mortgage, there are two types: fixed-or adjustable-rate mortgages. First, you’ll want to determine how long you plan on living in the home. If this is your forever home, and you want peace of mind that your principal and interest payment will remain the same for the entire term of your loan, a fixed-rate loan might be for you. Keep in mind your total monthly payment can still fluctuate if your property taxes and homeowner’s insurance are included or impounded, with your monthly payment.

Fixed-rate mortgage

  • Consider a fixed-rate mortgage if you want a predictable payment.

  • You may be able to refinance later if interest rates fall or your credit or financial situation improves.

An adjustable-rate mortgage, or ARM, is where your interest rate often starts out lower than with a fixed-rate loan, but your rate and payment could change over time. There is usually an introductory period which can be ten, seven, five or three years, during which your interest rate holds steady. After that, the rate may change periodically. Once the rate begins to adjust, the changes to your interest rate are based on the then current loan market. For example a 5/1 ARM has a set fixed rate for the first 5 years, and then the rate can adjust every 1 year after that. A 3/1 ARM has a 3-year fixed rate and it can then change annually after that. A 5/5 ARM is fixed for the first 5 years and then the rate can change once every 5 years. It is important to understand the trade-offs if you decide on an ARM. If you are planning to sell your home within a short period of time, future rate adjustments may not affect you. This is one reason some people consider an ARM. However, you shouldn’t count on being able to sell or refinance your home loan. Your financial situation, home values or interest rates could all change at any time. If you end up staying in your house longer than expected, you could end up paying more when rates adjust.

Adjustable-rate mortgage:

  • Your payment could increase, often by hundreds of dollars a month after the first introductory period.

  • Make sure you are confident you know what your maximum payment could be and that you can afford it.


Will the length of time to pay back the loan affect what loans and rates are available?

It is important to determine how long you want to repay your loan. Not all home loans are the same and knowing what kind of loan is appropriate for your situation prepares you for talking to lenders and getting the best deal. Use a home loan calculator to help you answer additional questions like; how much home can I afford and what should the loan term be? The loan term is the length of time it will take for a loan to be completely paid off if you make regular payments. Shorter loan terms like 10- or 15- years will typically have lower interest rates, but higher monthly payments due to shorter terms.  If your goal is to pay off your home quickly and you’re able to afford a higher monthly payment, then this might be the right option for you. Longer loan terms like 20-, 25- and 30-year loans, allow for a lower more affordable monthly payment than a shorter loan term.

Shorter terms: 10- or 15-year term

  • Higher monthly payments

  • Typically lower interest rates

  • Lower total costs

Longer terms: 20-, 25- and 30-year term

  • Lower monthly payments

  • Typically higher interest rates

  • Higher total cost


What steps can I take to prepare to purchase a home?

If you are planning to purchase in the future, here are some tips to prepare you:
First check your credit. You are entitled to one free credit report a year from each of the three credit reporting agencies. Visit annualcreditreport.com which is the only federally authorized site for your free annual credit report.
Begin saving now if you haven’t started already. The more you can put as a down payment, the better. Based on how much time you have, create a budget. Determine how long it will take you to get to your down payment goal. Lastly, while you’re working towards your savings for a down payment, it’s important to pay down as much debt as possible. The more income and assets you have in relation to your debt, the easier it may be to qualify. 


Here are some tips to find the best interest rates if you’re looking to buy in the future:

  • Clear up any issues with your credit report

  • Reduce debt

  • Stay current on payments

  • Document disputes with credit reporting agencies


  • Credit inquires

  • Opening new credit

  • Becoming delinquent

  • Co-signing for debt

  • Closing revolving accounts

  • Transferring balances

When making a financial decision about home loans, many people feel uncertain of where to start. It is important to work with a lender with a good reputation who can provide you with the best loan options for your specific situation. Start with the end goal in mind. Maybe you’re in the market to purchase a home or you’re looking to refinance an existing mortgage to reduce your rate or your monthly payment amount. Make sure you’re getting the kind of loan that makes the most sense for you. Ask lenders what loan options they recommend for you, and the costs and benefits associated with each. Look for trusted mortgage lenders who provide expert advice and are known for providing excellent customer service. Then, create a list of several home lenders that you want to work with and compare based on your needs.

  • When vetting different lenders, make sure to look for transparency and honesty.

  • Compare the annual percentage rate (APR), which is a measure of your costs over the loan term expressed as a rate.

  • Understand all fees involved, especially with brokers versus going with a direct lender like SDCCU.

  • Review your loan estimates with the exact loan type, total loan costs and interest rates.

SDCCU is here to help if you decide to buy or refinance. As your trusted home lender, SDCCU will provide you with loan estimates to make an informed decision about what fits your needs. You can even take advantage of a number of programs for homebuyers, like our no closing costs adjustable rate mortgage that offers flexibility and stability.1 SDCCU offers low rate conforming and jumbo home loans in San Diego and throughout California up to $3 million. You will find low fixed rates and adjustable rates for home loans that offer low monthly payments and down payments as low as 10%. We also offer a 90-day rate lock once you find a property. Learn more about our mortgage programs here: sdccu.com/mortgage.

  1. ARM loans offer flexibility, stability and no closing costs.- https://www.sdccu.com/loans/home-loan-mortgages/