Fixed mortgage rates have fallen since last Saturday, but adjustable rates and refinancing rates have increased. However, none of these changes are super significant. Rates have been falling overall since this period last month.
If you are ready to get a mortgage or refinance, you can choose a fixed rate mortgage rather than an adjustable rate mortgage.
Mat Ishbia, PDG de United Wholesale Mortgage, told Business Insider that there wasn’t much of a reason to choose an ARM over a fixed rate these days.
ARM rates started to be lower than fixed rates for the first few years, and there was a chance that your rate would go down later. But fixed rates are lower than adjustable rates right now, so you probably want to lock in a low rate while you can.
Rates of the Federal Reserve Bank of Saint-Louis.
30-year fixed mortgage rates fell two basis points, 15-year fixed rates fell one basis point and adjustable 5/1 rates increased four basis points. Mortgage rates have been falling across the board since the same period last month.
Mortgage rates are at historically low levels overall. The downward trend becomes more evident when you look at the rates from six months and a year ago.
Rates of the Federal Reserve Bank of Saint-Louis.
Low rates usually signal a struggling economy. Rates will likely remain low as the United States continues to grapple with the coronavirus pandemic.
Prices from The bank rate.
Overall refinancing rates remain low. They have increased by a few basis points since last Saturday, but have declined since last month.
These rates were last updated on Friday.
A 30-year fixed rate mortgage locks in your rate for the life of your loan, and you’ll pay off the mortgage over 30 years.
A 30-year fixed mortgage charges a higher rate than a shorter-term mortgage. 30-year fixed rates were previously higher than adjustable mortgage rates, but 30-year terms have become the better deal recently.
Your monthly payments on a 30 year term will be lower than on a 15 or 10 year term. You spread your payments over a longer period of time, so you’ll pay less each month.
You will pay more long-term interest with a 30-year term than you would with a short-term mortgage because a) the rate is higher and b) you will pay interest for longer.
With a fixed term of 15 years, you will pay off your mortgage over 15 years and your rate is locked in for the entire term.
You’ll pay less on a 15-year mortgage than on a 30-year loan, for two reasons: 15-year fixed rates are lower, and you’ll pay off the mortgage in half the time.
Your monthly payments will however be higher than with a 30-year mortgage. You get the same loan principal in a shorter period of time, so you will be paying more each month.
10-year fixed rates are generally similar to 15-year rates, but you’ll pay off your mortgage five years sooner.
It’s not very common to get a 10-year term on an initial mortgage, but you can refinance to a 10-year mortgage.
While a fixed rate mortgage locks your rate for the duration of the loan, a variable rate mortgage locks the rate in for the first few years, then changes it periodically. With an ARM 5/1, your price stays the same for the first five years, then increases or decreases once a year.
ARM rates are low right now, but you might still want to go with a fixed rate mortgage. It might be in your best interest to lock in a low rate with a 30 or 15 year fixed rate mortgage rather than risk increasing your rate with an ARM.
Adjustable rates were previously lower than fixed rates during the introductory rate period, but this is no longer the case. This means that ARMs are less beneficial than they were before.
If you are considering an ARM, you should still ask your lender what your individual rates would be if you chose a fixed or adjustable rate mortgage.
It might be a good time to apply for a mortgage, but it’s okay if you aren’t ready yet. Mortgage rates should stay low for a long time, 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 securing a low mortgage rate:
- Increase your credit score by making payments on time, paying off debt and letting your credit age. A score of at least 700 will help – but the higher the better.
- Save more for a down payment. Some types of mortgages require a 10% down payment, while USDA and VA loans do not require you to make a down payment. But the higher your down payment, the lower your rate is likely to be. Because rates are expected to stay low for a while, you probably have time to save more.
- Lower your debt to income ratio. Your debt ratio is the amount you pay for your debt 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 give you a better rate. Consider paying off certain debts, such as credit cards or personal loans, to get a lower ratio.
If your finances are strong, you might be able to secure a good mortgage rate now. But if not, you have plenty of time to make improvements and get a better rate.
Laura Grace Tarpley is associate editor of banking and mortgage services at Personal Finance Insider, which covers mortgages, refinancing, bank accounts and bank reviews.
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