Today's best mortgage and refinance rates: Monday, January 4, 2021

Mortgage rates have only shifted a little since last Monday, but they've been trending downward for quite some time. It could be a good day to lock in a low rate.

Whether you want to buy a home or refinance, you'll probably want to go with a fixed-rate mortgage, not an adjustable-rate mortgage.

"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.

The best mortgage rates for Monday, January 4, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.67%2.66%2.71%
15-year fixed2.17%2.19%2.26%
5/1 ARM2.71%2.79%2.86%

Rates from the Federal Reserve Bank of St. Louis.

Mortgage rates have shifted a bit since last Monday, but not significantly. Rates have decreased since this time last month.

Mortgage rates are at historic lows right now. The downward trend becomes more evident when you look at rates from six months ago or from this time last year.

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.67%3.07%3.72%
15-year fixed2.17%2.56%3.16%
5/1 ARM2.71%3.00%3.46%

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 COVID-19 pandemic, rates will likely stay low.

The best refinance rates for Monday, January 4, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.93%2.95%2.99%
15-year fixed2.40%2.41%2.44%
10-year fixed2.42%2.41%2.50%

Rates from Bankrate.

The 30-year and 15-year refinance rates have decreased since last Monday, and 10-year refinance rates have increased slightly. Refinance rates are down overall since this time last month.

What is a 30-year fixed-rate mortgage?

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 charges a higher rate than fixed mortgage with a shorter term. For a long time, you'd also pay a higher rate on a 30-year fixed mortgage than on an ARM. But these days, 30-year fixed rates are better deals than ARM rates.

You'll pay more in interest in the long term with a 30-year term than you would for a shorter term, because a) the interest rate is higher, and b) you pay interest for a longer amount of time.

The good news is that you'll pay less each month on a 30-year term than on a shorter term, because you're spreading your payments out over the years.

What is a 15-year fixed-rate mortgage?

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.

In the long run, a 15-year fixed-rate mortgage is more affordable than a 30-year term. The 15-year rates are lower, and you'll pay off the loan 15 years sooner.

Your monthly payments will be higher on a 15-year term than a longer term, though. You're paying off the same mortgage principal in half the time, so you'll pay more every month.

What is a 10-year fixed-rate mortgage?

A 10-year fixed-rate mortgage keeps your rate the same for the entire decade. The 10-year fixed rates are comparable to 15-year fixed rates, but you'll pay off your mortgage earlier.

It isn't very common to get a 10-year term on an initial mortgage, but you might refinance into a 10-year term.

What is a 5/1 ARM?

An adjustable-rate mortgage keeps your rate stays the same for the first few years, then changes it periodically.

With a 5/1 ARM, a low rate is locked in for the first five years. Then your rate changes once per year for the remaining 25 years.

A 5/1 ARM rate is higher than a 30-year or 15-year fixed rate right now. In the past, ARM rates have been lower, but that isn't the case in recent months. This means ARMs cost more than they used to, and are therefore less beneficial.

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.

How can you get the lowest mortgage rate possible?

Fixed mortgage rates are at all-time lows right now, so it could be a good time to lock in a low rate. 

You don't necessarily need to hurry, though. Mortgage rates will probably stay low for a long time, so you have time to improve your financial situation — which will land you a better rate. Here are some ways to get a lower mortgage rate:

  • Increase your credit score by paying down high-interest debt and making payments on time. A score of at least 700 will help you out — but the higher, the better.
  • Save more for a down payment. You don't necessarily need a 20% down payment to get a good rate, but the more you save, the better your rate will likely be. If you don't have much for a down payment right now, then it could be worth saving for a few more months, since rates are likely to stay low. If you don't have money for a down payment, then you could apply for a USDA or VA loan, if you qualify.
  • Lower your debt-to-income ratio. Your debt-to-income ratio is the amount you pay toward debts each month, divided by your gross monthly income. Lenders want to see a debt-to-income ratio of 36% or less. Consider paying down some debts, such as credit cards or a car loan, to get a lower ratio.

If your finances are strong, 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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