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30-Year Mortgages: What They Are, And How Rates Are Determined

Sarah Li Cain9-Minute Read
February 17, 2022

A 30-year mortgage is arguably the most popular home loan option for home buyers. That being said, no two mortgages are equal, so it’s a smart idea to shop around to get the best rates. It starts by understanding what your financial goals are, whether a fixed-rate or variable-rate mortgage is best for you, and what to do if you want to pay off your loan sooner.

What Is A 30-Year Fixed Mortgage?

A 30-year fixed-rate mortgage is a home loan with a term of 360 months and a fixed interest rate. The monthly payments remain the same throughout the 30-year term unless you choose to modify the loan agreement or refinance the loan.

In general, a 30-year fixed-rate mortgage offers higher rates compared to other types of loans and terms. That means you could be paying more in interest overall. It’s also important to consider other financial implications such as the home price, insurance and taxes when budgeting for your next home.

30-Year Mortgage Rates

Mortgage rates are determined by several factors such as the economic climate and your individual financial profile. While some factors, like the overall economy and local regulations, are out of your control, you can influence others like your credit score and down payment amount.

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Credit Score

Your credit score is a three-digit number ranging from 300 – 850 that is an assessment of your creditworthiness. Most lenders use the FICO® scoring model to determine whether you’re considered a “risky” borrower – in other words. based on your payment history, how likely is it that you’ll pay back your loan on time.

Think of a credit score as a resume or a financial snapshot of your credit behavior. The higher your score, the more likely you’ll be approved for a home loan with the best rates.

Your credit score is calculated based on the following factors:

  • Payment history: This factor is probably the most important, as lenders want to see you make on-time payments. The more missed or late payments you make, the lower your score could be.
  • Credit mix: Though minor, your score could be affected by the types of credit and loans you take out. The more variety you have – such as a mix of credit cards and personal loans – the more it seems like you’re responsible for different kinds of credit, assuming you consistently make on-time payments.
  • New credit: Credit scoring agencies look at how many times you’ve applied for new credit. The more you have over a short period of time, the more it seems like you’re struggling with your finances, hence it could negatively impact your score.
  • Credit history length: The longer your credit history, the more your score could go up.
  • Credit utilization: Your credit utilization looks at your revolving account balance compared to the overall limit you have. The higher the ratio, the more risky you look as a borrower.

When it comes to applying for a mortgage, lenders may have minimum credit score requirements. For example, to take out an FHA loan, the minimum score is 580. However, most conventional mortgage lenders aren’t as forthcoming with their minimum credit score requirements.

Before applying, take steps to improve your credit score if it’s not where you want it to be. Look at what may be negatively impacting your score and work to bring it up to help you secure the best rates possible.

Debt-To-Income Ratio

Your debt-to-income ratio, or DTI, is expressed as a percentage and compares your monthly debt burden with your gross income. Lenders use your DTI to assess your ability to repay your debts. The higher your DTI, the more it looks as though you’re stretched too thin financially and are therefore seen as a riskier borrower. In most cases, lenders of conventional mortgages prefer borrowers to have a DTI below 43%, though there are exceptions for government-backed loans.

To calculate your DTI, take your monthly debt payments and divide it by your gross monthly income. For example, if your monthly debt burden totals $2,000 and your gross income equals $4,000, your DTI is 50%.

To secure a lower interest rate, lower your DTI, either by paying down existing debt or increasing your income.

The Economic Climate

One of the most important factors in influencing mortgage rates is the Federal Reserve. While the Fed doesn’t directly set rates, their decisions can impact them. For instance, if the Fed lowers interest rates overall, mortgage rates tend to go down.

More specifically, the 10-year U.S Treasury bonds tend to influence rates – mortgage rates tend to be priced slightly above these types of bonds. Plus, overall economic growth and inflation tend to influence rates as well. For instance, higher rates of inflation could signal higher mortgage rates.

30-Year Mortgage Rate Trends

Data from Freddie Mac shows 30-year fixed mortgage rates have been trending downward. For example, historical data shows that on November 8, 2018, the average interest rate on this loan type was 4.94%. Almost a year later, on November 7, 2019, the average interest rate was 3.69%.

A week after the World Health Organization declared COVID-19 a global pandemic, average interest rates temporarily spiked, though the downward trend continued afterward. The Fed lowered the federal funds rate around that time, contributing to the downward trend. Average 30-year mortgage interest rates fell to 2.65% at the beginning of 2021. We’re now seeing a slight upward trend – as of February 2022, average rates hover around 3.55%.

30-Year Fixed Mortgage Vs. Adjustable-Rate Mortgage

Adjustable-rate mortgages, or ARMs, are types of home loans with an initial or introductory fixed rate period, after which rates fluctuate at a predetermined time interval. For instance, a 5/1 ARM means you’ll get a fixed rate for five years, then your rate will adjust each year for the remainder of your mortgage. Fixed rate mortgages, on the other hand, have the same rates throughout the life of the loan.

A main advantage of an ARM is that the introductory rates tend to be lower compared to fixed-rate mortgages. You could be paying a lower monthly payment, at least until the fixed-rate period is over.

However, rates could go up – it’ll depend on factors such as the economy – and you’ll end up paying more overall. Lenders do cap the amount your rate can go up or down by, so if you’re interested in getting an ARM, it’s best to check the fine print before signing the dotted line.

How Can I Shorten My Loan Term?

If you have a 30-year mortgage and decide later on you want to shorten the term of your loan, you have several options:

  • Make increased payments to the principal: Your lender may allow you to make extra payments towards the principal, which could significantly reduce how long you have your loan. Check to see that you won’t have to pay any prepayment penalties.
  • Make biweekly payments: Setting up more frequent payments could reduce the total interest paid and could add up to one extra payment per year. This extra payment could help you reach mortgage debt-free status a few years faster.
  • Refinance your loan: If you can afford higher monthly payments, consider refinancing to a 20-year or 15-year mortgage. There may be refinancing fees involved, so do some calculations to see whether they’re worth it for you.

The Bottom Line

Choosing a 30-year mortgage comes with pros and cons. For example, by choosing a 30-year mortgage, you can have more flexibility in your budget with a lower monthly payment. However, you’ll pay more in interest versus a shorter term if you repay the loan according to the lender’s repayment schedule.


Once you've taken some time to research your mortgage questions and compare loan products, you can dive in by starting with a quick online preapproval process. This can help you figure out what you can afford and make you a stronger buying candidate. Get preapproved online to start.

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Sarah Li Cain

Sarah Li Cain is a freelance personal finance, credit and real estate writer who works with Fintech startups and Fortune 500 financial services companies to educate consumers through her writing. She’s also a candidate for the Accredited Financial Counselor designation and the host of Beyond The Dollar, where she and her guests have deep and honest conversations on how money affects our well-being.