Great News! Mortgage rates set record lows again, again, again

Freddie Mac says mortgage rates hit yet another all-time low for the fourth straight week, dropping to 3.56 percent from the previous week's 3.62 percent. The 15-year rate edged lower as well, from 2.89 percent to a record-setting 2.86 percent.

Break out the champagne, bang your head on a wall, or yawn?

Average mortgage rates are kind of like average gas prices -- interesting, but it's unlikely that what you pay will match the average. With gas, your costs depend a great deal on where you live and what you drive. Similarly, what you pay for a mortgage also depends on where you live, how much equity or down payment you have, and your credit-worthiness.

How does your unique situation affect the mortgage rate you pay?

Here are three examples of rate quotes that mortgage applicants could receive, taken from the 7/12/12 rate sheets of a national lender (actual rates vary constantly and this is just an illustration). The first applicant will pay more because he lives in California, his credit score is less than 740 and he wants a cash-out refinance.

  • Robert Jones
  • Lives in California
  • Has a 678 FICO score
  • Has 30 percent home equity
  • Wants a cash-out 80 percent refinance.
  • His mortgage rate quote is 3.81 percent

The second applicant is about as perfect a borrower as you'll find. Her rate is lower than the national average because she lives in a state with a thriving economy, she's buying a home with a large down payment, and her credit is spotless.

  • Martha Smith
  • Buying a home in Minnesota
  • Has a 783 FICO
  • Is putting 35 percent down
  • Her mortgage rate quote is 3.35 percent.

Finally, we have an underwater Nevada homeowner applying for a Home Affordable Refinance Program (HARP) mortgage. Refinancing under the HARP plan has become easier and rates have become much more competitive now that borrowers don’t have to refinance with their current lenders – they can shop for their best HARP mortgage rate and get multiple mortgage quotes.

  • Jim and Nancy Beck
  • Live in Nevada
  • Current mortgage is 122 percent of their home's value
  • Their FICO is 715
  • They want a HARP refi to lower their mortgage rate
  • Their mortgage rate quote is 3.65 percent.

Okay, so how DO you get the best and lowest mortgage rate?

You probably can't change where you live, but there are things you can do to improve your mortgage interest rate that don't involve U-Haul trucks.

  • Know your credit score. You can get your report for free from and you can purchase your scores for a nominal fee. It's critical to know what you're dealing with, as you'll see in the next step.
  • Know what pricing surcharges to expect. You can ask a lender or find them at eFannieMae. The table isn't the easiest thing to understand, but you should be able to see that as your loan-to-value increases, so does your mortgage rate. As your credit score increases, your mortgage rate goes down. Cash-out refinancing costs more, and it's more expensive to finance second homes, investment homes, condos and manufactured homes.
  • Improve your FICO score. If you're at 679 right now, getting to the 680 cut-off (rates change in 20-point increments) can save you quite a bit of money, and it doesn't take long to add a single point to your score by paying down some balances.
  • Consider a cash-in refinance. Lower loan-to-values mean lower rates. If your current mortgage is at 82 percent of your home's value, paying it down to 80 percent could knock .125 percent off of your mortgage rate, plus you’ll be able to dump your mortgage insurance premiums.
  • Shop, shop and shop. One of the easiest ways to find the best mortgage rates is to get mortgage quotes from several lenders licensed to do business in your state. Studies have shown that mortgage rates can vary by as much as .5 percent between lenders. It's easy to get multiple quotes online, and by skipping that step, you might be leaving a lot of money on the table.

Check out mortgage quotes from competing lenders this week. You might set your own record when you purchase or refinance your home.

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