Some mortgage and refinance rates have declined since last Saturday, while others have risen – but the changes are not very significant. Overall, rates are still at an all time low.
If you want to buy a home or refinance, you may prefer a fixed rate mortgage rather than a variable rate.
Darrin English, Senior Community Development Loan Officer at Quontic Bank, said Business Insider’s fixed rates are much more beneficial to borrowers than adjustable rates these days.
Adjustable rates are used to start lower than fixed rates. So they can be good options if you plan to move before your rate goes up. However, fixed rates are currently lower than ARM rates. If your finances are strong, this might be a good day to set a low rate.
Federal Reserve Bank of St. Louis rate.
30-year fixed mortgage rates have only risen by one basis point since last weekend, while 15-year fixed rates and 5/1 adjustable rates have declined. Mortgage rates have been falling since the start of December.
Mortgage rates are currently at historically low levels. The downward trend becomes more evident when looking at rates from six months ago or last January.
Federal Reserve Bank of St. Louis rate.
Lower rates are usually a sign of a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates are expected to remain low.
Bankrate rate.
Refinancing rates have changed slightly since last weekend and have fallen since around the same time last month.
With a 30-year fixed mortgage, you’ll pay off your loan over 30 years, and your rate will stay the same for the duration.
You will pay a higher interest rate on a 30-year fixed rate mortgage than on a shorter term fixed rate mortgage. 30-year fixed rates were previously higher than adjustable rates, but recently 30-year terms have been more advantageous.
Monthly payments are relatively low for a 30-year term because you are spreading out the payments over a longer period than over a shorter period.
In the end, you’ll pay more interest over a 30-year term than on a 15-year mortgage because a) the rate is higher and b) you’ll pay interest longer.
With a 15-year fixed mortgage, you pay off your loan over 15 years and pay the same rate for the life of the loan.
15-year fixed rate mortgages are more affordable than long-term 30-year terms. You’ll pay a lower interest rate over 15 years and pay off the mortgage in half the time.
However, your monthly payments will be higher for a 15-year mortgage than for a 30-year loan. You pay back the same capital in a shorter period, which means that you will pay more each month.
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 these are not very common. However, you can refinance your loan over a period of 10 years.
A variable rate mortgage allows you to keep the interest rate at the same level for the first few years and then change it periodically. A 5/1 variable rate loan locks in your rate for the first five years. Then your rate increases or decreases once a year for the remaining 25 years.
ARM rates are currently at historically low levels, but a fixed rate mortgage is still the best solution. The 30-year fixed rates are comparable or higher than the ARM rates. You can choose to lock in a low rate with a 30- or 15-year fixed rate mortgage rather than risking your rate hike later with an ARM.
If you are considering a variable rate mortgage, you should still ask your lender what your individual rates would be if you chose a fixed rate rather than a variable rate loan.
Whether you want to get an initial mortgage or a refinance, it may be a good idea to get a fixed rate loan. Fixed rates are currently at a historically low level.
But you probably don’t need to rush. Rates are expected to stay low until 2021, giving you time to strengthen your financial portfolio and get a better rate. Here are some ways to get a better mortgage rate:
- Increase your credit rating. Make sure you make all your payments on time. You may also want to consider paying off more debt or letting your credit age. You can request a copy of your credit report to check for errors that could affect your score.
- Save more for a down payment. Depending on the type of mortgage you want, you may need 0-20% for a down payment. But lenders offer lower rates to people who have a larger down payment. Since rates are expected to stay low for a while, you’ll probably have time to save more.
- Lower your debt to income ratio. Your DTI ratio is the amount you pay each month for your debts divided by your gross monthly income. Many lenders want a DTI ratio of 36% or less, but the lower your ratio, the better your rate will be. To lower your ratio, pay off your debts or consider opportunities to increase your income.
If your finances are in good shape, you could get a low mortgage interest rate right now. Otherwise, you have plenty of time to make improvements to get a better rate.
Laura Grace Tarpley is Associate Editor of the Banking and Mortgages column for Personal Finance Insider magazine. She deals with mortgages, refinances, bank accounts and bank reviews.
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