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Conventional Loan Mortgage Rates: Are They Rising In 2021?

Conventional Loan Mortgage Rates: Are They Rising In 2021?
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Home.com Contributor

For generations of American adults, homebuying has been a rite of passage — albeit a costly one.

Buying a home is the biggest financial decision most people ever make, and the interest rate they pay on their home loan can have a serious impact on just how big.

Most homebuyers opt for conventional loans, which are the most common types of mortgages and are now available for as little as 3% down.

But there are a lot of factors that determine the overall cost of owning a home, and conventional loan mortgage rates are one of them.

What's in this Article?

Are conventional loan interest rates rising?
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What are conventional loan interest rates today?
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How to qualify for competitive conventional loan rates
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Conventional loan mortgage rates FAQ
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Take advantage of low conventional mortgage rates
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Are conventional loan mortgage rates rising?

Not by much — at least for now.

Mortgage rates hit all-time lows in 2020. At one point, rates on some mortgages dipped well below 2% as the market was rocked by the Covid-19 pandemic.

The reasons for the rate drop were complex. Interest rates are tied to a lot of economic factors, including market volatility, the prime lending rate, federal Treasury markets, 10-year Treasury bonds, and inflation.

Mortgage rates are also influenced by activity in the mortgage market. When lenders close mortgages, they sell them on the secondary market as mortgage-backed securities (MBS). Investors buy MBS as relatively low-risk investments.

Because MBS are considered “safe,” they become particularly popular during periods of economic upheaval. And as we all know, 2020 saw a lot of upheaval. With so much economic uncertainty last year, investors flocked to MBS because they’re generally not volatile investments. The increased demand drove rates down, and that was great news for homebuyers.

But because MBS are relatively safe, they don’t earn high interest. So when the economy stabilizes, demand decreases and rates begin to rise once again. We’re already seeing that as rates creep up in 2021.

Even though conventional loan interest rates today have been trending upward, they are still quite low.

In fact, on July 9, 2020, the 30-year fixed-rate mortgage average was 3%, according to the Federal Reserve Bank of St. Louis (St. Louis Fed). On July 8, 2021, the average was 2.9%.

Generally speaking, rates have been rising this year but the average has remained close to 3%.

What are conventional loan interest rates today?

Markets fluctuate constantly, which means interest rates do, too. Rates also vary based on where you live and your lender, so it’s tough to nail down exactly what conventional loan interest rates are today. However, you can get a sense of the range by looking at the monthly averages published by the St. Louis branch of the Federal Reserve.

conventional loan rates since 2014

Of course, those are national averages and don’t indicate the rate you’ll receive. Lenders set individual mortgage rates based on several factors, including your credit score, the purchase price of the home, and your loan-to-value ratio (LTV)*.

The LTV refers to how much you’re borrowing vs. how much money you’re putting down. A borrower who has a 700 credit score and puts down 3% on a $350,000 home may receive a higher interest rate than someone who puts down 20% and has a 780 credit score.

Rates also vary based on where you live and your lender, so it’s tough to nail down exactly what conventional loan interest rates are today.

Why do interest rates vary?

Why? Because your interest rate reflects your risk profile. Homebuyers with excellent credit and large down payments represent lower risk to lenders because they have a history of on-time payments and good money management, plus a larger stake in the home upfront. The lower your loan amount, the less the lender has to lose.

That’s not to say you shouldn’t buy a home if you only have 3% to put down or your credit is less than excellent. Low down payment programs exist to help creditworthy buyers become homeowners. So if you have a shot at buying a house with little down, there’s nothing wrong with taking it.

Even if your interest rate is a little higher, you may be able to refinance down the road to a better rate. Besides, as we said above, rates are still fairly low. So if you buy this year, you’ve got a shot at a pretty solid rate.

Still, it always pays to shop around. To make sure you get the most competitive interest rate, request quotes from at least three lenders. Even a half percentage on a 30-year mortgage can mean thousands of dollars saved — or spent.

How to qualify for competitive conventional loan rates

Having your financial house in order before you buy an actual house can help you get a competitive conventional loan rate. A high credit score, minimal debts, and strong savings can all work in your favor when your lender calculates your mortgage interest rate.

So, pay your bills on time. Put any accounts you can on autopay to avoid late fees and blemishes on your credit record. You can also boost your credit score by keeping credit card balances low and limiting the number of new accounts you open.

The “one-point penalty” for conventional loans

Conventional loans are based largely on credit score. Fannie Mae and Freddie Mac use credit score tiers to determine your rate.

For instance, someone with a score between 680-699 could get a drastically better rate than someone in the 660-679 tier.

This is all fine and good until you have a 679 score.

By some estimates, having a 679 instead of 680 could cost you an extra $47 per month on a 10% down $350,000 loan.

Likewise, your conventional loan mortgage rate could be much worse if your score is at or below any of the following:

  • 739
  • 719
  • 699
  • 679
  • 659
  • 639

How to avoid the one-point penalty

When you apply for a conventional loan, ask the loan officer for your “middle score” which is what they use to qualify you. If it ends with a “9”, there’s a good chance you could save money by paying down a credit card or cleaning up your credit a bit to raise your score by a single point.

Other ways to increase your score starting now: Make sure all of your existing loans are in good standing as well. Got student loans? Avoid defaulting, and make payments on time. If the payments are a burden, find out if you qualify for an income-based repayment (IBR) plan. IBR plans adjust your payments to your income so they’re more affordable and can keep you from defaulting.

If you’re struggling with a car loan, talk to your lender about refinance options. They may be able to extend your repayment period and reduce your monthly payments, making it easier to keep the account current and afford a mortgage. 

A mortgage lender will evaluate your current debts and payment history when approving you for a home loan and setting your mortgage rate, so minimizing your debts and paying them on time can get you into a home at an affordable rate.

And if your wallet is looking thin, reality check your spending. During COVID, we all learned how to enjoy dinner and a movie at home. Keep up that habit.. Any amount you aren’t spending will add up quickly and can make a difference to your interest rate — and how much you’ll pay over the life of the loan.

Conventional loan mortgage rates FAQ

Do conventional loans have higher interest rates?

Conventional loans can be quite competitive, but the rate you receive depends on the current market and your finances. Your credit score, debt-to-income ratio (DTI), and loan-to-value ratio (how much you’re borrowing vs. your down payment) all impact your interest rate.

Are conventional loans a fixed rate?

Conventional loans are available with a variety of terms, from a fixed-rate 15-year or 30-year loan to an adjustable rate mortgage (ARM). A fixed-mortgage rate means the conventional loan interest rate won’t change. Your principal and interest payments will remain the same, providing some stability for budgeting and financial planning.

With an ARM, you receive a fixed rate for a certain period, after which the rate becomes variable — meaning it can shift up or down, depending on what’s happening in the market. If you choose an ARM when you take out the mortgage but find that the adjustable rate increases become too costly, you may be able to refinance to a fixed-rate loan to stabilize your loan payments.

Do sellers prefer conventional loans?

They might. Conventional loans typically have less stringent appraisal and property requirements than government-backed loans, such as FHA, USDA, and VA loans. Sellers may prefer offers with conventional loans if they believe a sale is more likely to go through, and to close quickly, than with a government loan program.

Take advantage of low conventional loan mortgage rates

Conventional loan rates could well stay low through the end of this year, making it a good time to buy a home — if you’re financially ready.

Remember, your interest rate is in large part a reflection of your financial stability and preparedness. So if you want to score a good rate, focus on boosting your credit score, saving for your down payment, and keeping your debts as low as you can.


*Loan-to-Value (LTVs) and Combined Loan-to-Value (CLTVs) may vary by loan amount.

Fairway is not affiliated with any government agencies. These materials are not from the VA, HUD, FHA, USDA, or RD, and were not approved by a government agency.

Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.

Further Reading

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