Mortgage rates have dropped since last Saturday, with the exception of 10/1 ARM rates, which have increased slightly. Both mortgage and refinance rates remain at all-time lows in general, and you’ll probably want a fixed-rate mortgage rather than an adjustable-rate mortgage right now.
“Normally there’s an advantage to a 5/1 ARM,” Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider about an adjustable rate mortgage, in which the rate fluctuates after an initial period. “There’s a reward, like a lower rate.”
However, he points out that the 30-year and 15-year fixed rates are currently offering better rates than the 5/1 adjustable rate mortgage, “and it’s because lenders would much rather see you at their institution for a very long period of time.”
If your finances are solid, it could be a good day to get a fixed-rate mortgage.
Rates from Ad Practitioners LLC.
The 15-year fixed, 30-year fixed, and 7/1 ARM rates have decreased since last Saturday, while 10/1 ARM rates have increased.
Remember that these are the national average rates for conventional mortgages, which are what you probably think of as “regular mortgages.” If you get a government-backed mortgages through the FHA, VA, or USDA, rates could look a little different.
Mortgage rate are at historic lows overall. Low rates are usually a sign of a struggling economy. Mortgage rates will probably stay low as the US continues to grapple with the COVID-19 pandemic.
Rates from Ad Practitioners LLC.
The 15-year fixed and 7/1 ARM refinance rates have gone down since last Saturday. The 30-year fixed and 10/1 ARM refinance rates have gone up.
With a 15-year fixed mortgage, you’ll pay off the mortgage over 15 years and pay the same rate the entire time.
A 15-year mortgage comes with a lower interest rate than a 30-year mortgage. Between the lower rates and paying off the mortgage in half the time, you’ll pay less on a 15-year mortgage in the long run.
Your monthly payments will be higher on a 15-year mortgage than on a mortgage with a longer term, though. You’re paying off the same principal amount in a shorter amount of time, so you’ll pay more each month.
With a 30-year fixed-rate mortgage, you pay off your loan over 30 years, and your rate remains the same the entire time.
A 30-year fixed mortgage comes with a higher interest rate than fixed-rate loans with shorter terms. For a long time, 30-year fixed rates were higher than adjustable rates. But right now, 30-year fixed rates the better deal.
Your monthly payments will be lower for a 30-year term than for a shorter term, because you’re spreading payments out over a longer period of time.
You’ll pay more in interest with a 30-year term than you would for a 15-year or 10-year mortgage, because a) the rate is higher, and b) you’ll be paying interest for longer.
With an adjustable-rate mortgage, your rate is locked in for the first few years, then it fluctuates periodically.
For example, a 7/1 ARM keeps your rate the same for the first seven years, then it increases or decreases annually. A 10/1 ARM locks in your rate for the first decade, then it changes once per year.
ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. The 30-year fixed rates are comparable to or lower than ARM rates. It could be in your best interest to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate increasing later with an ARM.
If you’re considering an ARM, you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.
Whether you want to get an initial mortgage or refinance, it could be a good time to get a fixed-rate mortgage. Fixed rates are at all-time lows right now.
You don’t necessarily need to hurry to apply for a new mortgage, though. Rates will likely stay low well into 2021, if not longer. If you want to land the lowest rate, consider taking some of the following steps before submitting an application:
- Improve your credit score. Making all your payments on time is the most important factor in boosting your score, but paying down debts and letting your credit age can also help. A score of at least 700 will help you out, but an even higher score will be beneficial.
- Save more for a down payment. You may be able to put down as little as 3% on a conventional mortgage, but lenders often reward a higher down payment with a better rate. Rates should stay low for a while, so you probably have time to save more.
- Lower your debt-to-income ratio. Your DTI ratio is the amount you pay toward debts each month, divided by your gross monthly income. Lenders usually want to see a DTI ratio of 36% or less, but an even lower ratio can land you a better rate. To lower your ratio, pay down debts or consider opportunities to increase your income.
If you feel comfortable with your financial situation, this could be a great time to get a mortgage, because rates are at all-time lows overall.
Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.