Some mortgage rates have decreased since last Sunday, while others have increased. Refinance rates are up overall. However, none of the shifts are very significant.
Mortgage and refinance rates are low in general, so it could be a good time to get a new mortgage if your finances are in a good place. You’ll probably get the best deal on a fixed-rate mortgage, not an adjustable-rate mortgage.
Adjustable-rate mortgages change your rate after an initial period. Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider these mortgages used to work in favor of some borrowers, because adjustable rates would start lower than fixed rates.
English said adjustable-rate mortgages are becoming less advantageous for borrowers. ARM rates are starting higher than fixed-rate mortgages, and you’d risk your rate increasing down the road. It’s safer to lock in a low rate now rather than face higher rates later.
If your finances are stable, it could be a good time to get a fixed-rate mortgage or refinance.
Rates from the Federal Reserve Bank of St. Louis.
Fixed mortgage rates have gone down since last Sunday, and adjustable rates have gone up. Mortgage rates have decreased since this time last month.
In general, mortgage rates are at historic lows. The downward trend becomes more apparent when you look at rates from six months and a year ago.
Rates from the Federal Reserve Bank of St. Louis.
Low rates usually signal a struggling economy. Mortgage rates will probably stay low as the US continues to deal with the coronavirus pandemic.
Rates from Bankrate.
Refinance rates have gone up a little since last weekend, but they’re still low in general. They’ve decreased since this time last month. These rates were last updated on Friday.
A 30-year fixed-rate mortgage locks in your rate for the entire life of your loan, and you’ll pay off the mortgage over 30 years.
A 30-year fixed-rate mortgage charges a higher interest rate than a 15-year or 10-year fixed-rate mortgages. For a long time, you’d also pay a higher rate on a 30-year fixed mortgage than on a 5/1 ARM. But right now, 30-year fixed rates are the better deal.
You’ll pay more in interest in the long term with a 30-year term than you would for a 15-year or 10-year term, because a) the rate is higher, and b) you’ll be paying interest for longer.
The good news is that you’ll pay less each month on a 30-year term than on a shorter term, so you’re spreading your payments out over a longer period of time.
With a 15-year fixed term, you’ll pay down your mortgage over 15 years, and your rate is locked in for the entire time.
A 15-year fixed-rate mortgage is less expensive than a 30-year term in the long run. The 15-year rates are lower, and you’ll pay off the loan in half the amount of time.
However, your monthly payments will be higher on a 15-year term than a 30-year term. You’re paying off the same loan principal in half the time, so you’ll pay more every month.
The 10-year fixed rates are usually similar to 15-year rates, but you’ll own your home outright five years earlier.
A 10-year term isn’t super common for an original mortgage, but you might refinance into a 10-year mortgage.
An adjustable-rate mortgage, often referred to as an ARM, keeps your rate 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 will fluctuate once per year.
Although ARM rates are relatively low these days, you still may want to go with a fixed-rate mortgage. The 30-year fixed rates are comparable to or lower than ARM rates, so it could be good to lock in a low rate with a fixed 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.
It may be a good time to get a mortgage, but don’t stress if you aren’t ready yet. Mortgage rates should stay low for months (if not years), so you’ll probably have time to take advantage of low rates.
To get the lowest rate possible, consider working to improve your finances. Here are some tips for locking in a low mortgage rate:
- Increase your credit score by making payments on time, paying down debt, and letting your credit age. A score of at least 700 will help you out — but the higher, the better.
- Save more for a down payment. With a conventional mortgage, you may be able to put down as little as 3%. But the higher your down payment, the lower your rate will likely be. Because rates should stay low for a while, you probably have time to save more.
- Lower your debt-to-income ratio. Your DTI is the amount you pay toward debts each month, divided by your gross monthly income. Most lenders want to see a DTI of 36% or less, but an even lower DTI can result in a better rate. To improve your DTI, pay down debts or figure out whether you can earn more money.
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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