Some mortgage and refinance rates have decreased since last Saturday, while others have increased — but the shifts aren’t very significant. Rates are still at all-time lows overall.
If you want to buy a home or refinance, you may prefer a fixed-rate mortgage rather than an adjustable-rate mortgage.
Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider fixed rates are much more advantageous for borrowers than adjustable rates these days.
Adjustable rates used to start lower than fixed rates, so they could be good options if you planned to move before your rate increased. However, fixed rates are lower than ARM rates right now. If your finances are solid, it could be a great day to lock in a low rate.
Rates from the Federal Reserve Bank of St. Louis.
The 30-year fixed mortgage rates have increased by only one basis point since last weekend, and 15-year fixed and 5/1 adjustable rates have decreased. Mortgage rates are down since the beginning of December.
Mortgage rates are at historic lows right now. The trend downward becomes more apparent when you look at rates from six months ago or from last January.
Rates from the Federal Reserve Bank of St. Louis.
Lower rates are typically a sign of a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates should remain low.
Rates from Bankrate, last updated on Friday
Refinance rates have shifted slightly since last weekend and gone down since this time last month.
With a 30-year fixed mortgage, you’ll pay off your loan over 30 years, and your rate stays the same the whole time.
You’ll pay a higher interest rate on a 30-year fixed mortgage than on a shorter-term fixed-rate mortgage. The 30-year fixed rates used to be higher than adjustable rates, but recently 30-year terms have been the better deal.
Monthly payments are relatively low for a 30-year term, because you’re spreading payments out over a longer period of time than you would with a shorter term.
You’ll ultimately pay more in interest with a 30-year term than you would for a 15-year mortgage, because a) the rate is higher, and b) you’ll be paying interest for longer.
With a 15-year fixed mortgage, you’ll pay down your loan over 15 years and pay the same rate for the entire life of the loan.
The 15-year fixed-rate mortgages are more affordable than 30-year terms in the long run. You’ll pay a lower interest rate on a 15-year term, and you’ll pay off the mortgage in half the time.
Your monthly payments will be higher for a 15-year mortgage than for a 30-year mortgage, though. You’re paying off the same principal in a shorter amount of time, so you’ll pay more every month.
The 10-year fixed mortgage rates are similar to 15-year fixed rates, but you’ll pay off your mortgage five years sooner.
Some lenders offer 10-year terms for initial mortgages, but they aren’t super common. You may refinance into a 10-year term, though.
An adjustable-rate mortgage keeps your rate stays the same for the first few years, then changes it periodically. A 5/1 ARM locks in your rate for the first five years. Then your rate goes up or down once per year for the remaining 25 years.
ARM rates are at historic lows right now, but a fixed-rate mortgage is still the better deal. The 30-year fixed rates are comparable to or better than ARM rates. You may want to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate going up 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 day to get a fixed-rate mortgage. Fixed rates are at historic lows right now.
But you probably don’t have to rush. Rates should stay low well into 2021, so you have time to beef up your financial portfolio and land a better rate. Here are some ways to get a better mortgage rate:
- Increase your credit score. Be sure to make all your payments on time. You can also look into paying down more debts or letting your credit age. You may want to request a copy of your credit report to review your report for any errors that could be hurting your score.
- Save more for a down payment. Depending on which type of mortgage you want, you may need between 0% and 20% for a down payment. But lenders offer lower rates to people who have bigger down payments. Because rates should stay low for a while, you likely 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. Many lenders want to see a DTI ratio of 36% or less, but the lower your ratio, the better your rate will be. To lower your ratio, pay down debts or consider opportunities to increase your income.
If your finances are in a good place, you could get a low mortgage rate now. But if not, you have plenty of time to make improvements to get a better rate.
Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.
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