Thinking about buying a home or refinancing in ’Bama? Here’s everything you need to know about the mortgage rates Alabama borrowers can expect.
The Best Mortgage Lenders in Alabama for Rates:
- Best Overall in Alabama: Rocket Mortgage®
- Best for First Time Home Buyers: Regions
- Best for Low Credit Scores: Fairway Mortgage
- Best for Variety: Wells Fargo
- Best for Veterans: Veterans United
What is a Mortgage Rate?
Lenders provide borrowers with the funds to purchase or refinance a home. In exchange, you repay the loan with interest. Your mortgage rate is the interest rate charged by your lender. The interest you pay covers the cost of administering your loan.
What Factors Impact Your Mortgage Rate?
Lenders don’t offer every borrower the same rate because many factors impact your mortgage rate:
- Your credit history: Every loan is a potential risk to the lender — even mortgages, which are secured by the home. Lenders evaluate borrowers by reviewing their credit history. They look at whether you’ve made your credit card and loan payments on time. Lenders offer borrowers with excellent credit history the lowest rates.
- Your down payment: A higher down payment shows lenders that you’re serious about your mortgage. It also lowers the risk to the lender. Lenders may offer you a lower interest rate if you make a higher down payment.
- The size of your mortgage: Mortgages that are very small (less than $100,000) or very large (more than $500,000) sometimes have higher interest rates. Smaller mortgages require the same amount of effort with a lower return for the lender. Larger mortgages require more underwriting and more effort.
- The economy: Lenders raise or lower their interest rates based on how the economy does. When the economy does well, interest rates tend to go up. There’s more competition for a limited amount of money. Lenders need to provide an incentive for people to buy a home when the economy hits a low spot — lower interest rates are one way to do that.
- Points: Some lenders allow you to purchase points to get a discount on your interest rate. One point typically costs 1% of your mortgage total. In exchange for purchasing points, you get a lower interest rate.
Each lender has its own approach, so it’s essential to get a purchase or refinance quotes from multiple lenders.
What is a Mortgage Type?
Not all mortgages are the same. Here are the most common types of mortgages:
Conventional
The federal government doesn’t insure conventional mortgages. This means that lenders tend to be stricter about who can qualify. These loans typically have a higher credit score requirement. They may also require a down payment of 10% to 20%. If you put down less than 20%, you may need to pay for private mortgage insurance (PMI). PMI pays the lender if a borrower defaults and the home sells for less than the mortgage balance.
FHA
The Federal Housing Administration backs FHA loans. This allows lenders to offer these mortgages to a broader range of borrowers. Borrowers with credit scores as low as 500 can qualify with a 10% down payment. Borrowers with a 580 credit score or higher can make a down payment as low as 3.5%.
Borrowers have to pay mortgage insurance, must make mortgage insurance premium payments — both upfront ongoing monthly insurance premium payments.
USDA
The Department of Agriculture insures USDA loans. Borrowers can use a USDA loan to purchase a home in a rural area. Some USDA loans have no minimum down payment, but there are income limitations.
VA
The Department of Veterans Affairs insures mortgages for veterans and current service members. Those who qualify can get a mortgage with no down payment and low-interest rates. VA loans don’t require PMI and there’s also a cap on closing costs.
Private lenders offer government-backed mortgages. Each government agency approves its lenders. Deciding on the right type of mortgage is a big decision. The best mortgage companies will take the time to get to know you and recommend the best mortgage type for your situation.
What is a Mortgage Term?
Your mortgage term is how long your mortgage will last if you just make the minimum monthly payments. Let’s look at a few common mortgage terms:
- 30-year fixed: A 30-year fixed-rate mortgage will last 30 years if you don’t make any extra payments. It has the same interest rate for the entire term — and the same monthly payments.
- 15-year fixed: A 15-year fixed-rate mortgage is similar to a 30-year mortgage. It has the same monthly payment and interest rate throughout the 15-year term. The monthly payments are higher than for a 30-year mortgage since the term is shorter, but you pay less in interest over time.
- 5/1 ARM: An adjustable-rate mortgage (ARM) is a mortgage with an interest rate that changes. ARMs typically start with an introductory fixed rate. After that, the rate changes based on a predetermined schedule. A 5/1 ARM has a 5-year introductory period. After that, the interest rate changes once per year.
5/1 ARMs sometimes have a lower interest rate than a 30-year fixed-rate mortgage, but it depends on the market.
Current Mortgage Rates in Alabama
Lenders change mortgage rates daily on weekdays. They change rates in response to changes in economic conditions and the real estate market. For example, if the unemployment rate drops, interest rates might creep up by 0.05% or more.
These changes might not seem like a big deal, but even a small change can cost you (or save you) thousands of dollars over your mortgage term. We update mortgage rates frequently to reflect the most relevant information.
Here are the current mortgage rates in Alabama:
| Loan Type | Rate | APR |
|---|---|---|
| 30-year fixed | 6.709% | 6.813% |
| 15-year fixed | 6.464% | 6.723% |
| 7/1 ARM (adjustable rate) | N/A | N/A |
| 5/1 ARM (adjustable rate) | N/A | N/A |
Calculating Interest in Alabama
Mortgage interest may seem low compared to other financial products but the costs add up. Each monthly mortgage payment you make is divided up between interest, your loan balance, homeowners insurance, property taxes and other expenses.
The lender calculates how much of your payment goes toward interest each month. Each month you pay down more of your mortgage balance and less in interest. This process is called amortization. Let’s take a look at how much you pay in interest in 4 Alabama cities.
| City | Average Home Value | Loan Term | Current Rate | Downpayment (20%) | Monthly Payment | Total Interest Paid |
|---|---|---|---|---|---|---|
| Huntsville | $153,900 | 30-year fixed | 6.333% | $30,780 | $764.73 | $152,182.80 |
| Birmingham | $84,000 | 30-year fixed | 0% | $16,800 | $0.00 | -$67,200.00 |
| Mobile | $120,700 | 30-year fixed | 6.333% | $24,140 | $599.76 | $119,353.60 |
| Montgomery | $84,300 | 30-year fixed | 0% | $16,860 | $0.00 | -$67,440.00 |
Lender Credit Score Minimums in Alabama
Your credit score is a 3-digit number that gives lenders an overview of how you’ve handled credit. Scores range from 300 – 850. A score of 700 or higher is considered good, and good credit scores get the lowest interest rates. Lenders establish minimum credit scores.
They often won’t approve a mortgage for borrowers who don’t have at least the minimum credit score. Here are credit scores for several Alabama lenders.
| Lender | Minimum Credit Score Required |
|---|---|
| Bank of America | 620 |
| Freedom Mortgage | 620 |
| Guaranteed Rate | 620 |
| PennyMac | 620 |
| Rocket Mortgage® | 620 |
5 Best Mortgage Lenders in Alabama
Ready to get a refinance or purchase quote? Here are our picks for the 5 best lenders in Alabama:
- Online Mortgages
1. Best Overall: Rocket Mortgage®
Rocket Mortgage® is an online lender. You can complete the entire process from the comfort of your home.
You won’t be left alone during the process, though — Rocket Mortgage® has award-winning customer service.
Rocket Mortgage® offers conventional and government-backed mortgages.
- Simple Prequalification
2. Best for First Time Buyers: Regions
Regions ranks first among lenders for first time buyers due to its multiple locations and personal service.
Many first time buyers like to work with a loan officer in person. Regions is also approved to offer loans backed by the Alabama Housing Finance Authority.
The Housing Authority offers programs to help low- and moderate-income homebuyers secure a home.
- Local Lending
3. Best for Low Credit Scores: Fairway Independent Mortgage Corporation
Fairway Independent Mortgage Corporation specializes in government-backed mortgages.
These mortgages offer the most flexibility for borrowers with low credit scores.
Fairway offers other mortgages, including renovation mortgages if you’re looking at a fixer-upper.
- Traditional Lending
4. Best for Variety: Wells Fargo
Wells Fargo is one of the biggest lenders in Alabama for a reason — it has a wide variety of mortgage products.
It offers jumbo loans, government-backed loans, renovation and new construction loans and proprietary products to help union members and first time homebuyers.
You can complete most of the application process online or go to a branch in person.
- Current Service Members
5. Best for Veterans: Veterans United
If you’ve logged some time in the military, Veterans United’s loans will likely be the best deal. Unlike other veteran-marketed loan programs, Veterans United only accepts active duty and veteran military members.
In addition to no-down-payment loans, you’ll also eliminate the private mortgage insurance you’ll have to pay with other mortgages.
Veterans United is also more forgiving of lower credit scores. Interest rates are lower than average.
Choose an Alabama Lender
Choosing a lender is an important decision. The best way to choose a lender is to contact at least 2 or 3 options. Look at each lender’s rate quote and fees. Consider each lender’s customer service and education options.
If you’re a low-to-moderate income borrower, you may also qualify for one of Alabama’s homebuyer assistance programs. Choose the lender that feels like the best fit for you.
Frequently Asked Questions
1) Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
2) Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
3) Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.
