Today's best mortgage and refinance rates: Sunday, December 20, 2020

Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, like American Express, but our reporting and recommendations are always independent and objective.

Mortgage and refinance rates have gone down since last Sunday, with the exception of 5/1 adjustable rates, which have stayed the same.

Super-low rates could make it a great time to get a mortgage, but you may want to go with a fixed-rate mortgage rather than an adjustable-rate mortgage.

Mat Ishbia, CEO of United Wholesale Mortgage, told Business Insider there isn't a reason to choose an ARM these days.

ARM rates used to start lower than fixed rates, and there was always the chance your rate could go down later. But fixed rates are lower than adjustable rates right, and you probably want to lock in a low rate while you can.

Mortgage rates today, Sunday, December 20, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.67%2.71%2.72%
15-year fixed2.21%2.26%2.28%
5/1 ARM2.79%2.79%2.85%

Rates from the Federal Reserve Bank of St. Louis.

Fixed mortgage rates are down since last Sunday, and adjustable rates have remained steady. Mortgage rates have decreased a bit since this time last month.

Overall, mortgage rates are at all-time lows. The trend downward becomes more evident when you look at rates from 6 months or a year ago:

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.67%3.13%3.73%
15-year fixed2.21%2.58%3.19%
5/1 ARM2.79%3.09%3.36%

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 will likely stay low.

Refinance rates today, Sunday, December 20, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.90%2.94%3.03%
15-year fixed2.42%2.59%2.56%
10-year fixed2.43%2.47%2.57%

Rates from Bankrate.

Mortgage refinance rates have decreased since last Sunday and since this time last month.

These rates were last updated on Friday, December 18.

How do 30-year fixed-rate mortgages work?

A 30-year fixed mortgage keeps your rate the same for all 30 years, until you've completely paid off your mortgage. If mortgage rates in the US trend upward or downward during those 30 years, you won't be affected. 

A 30-year fixed-rate mortgage charges a higher interest rate than a shorter-term fixed-rate mortgage. The 30-year fixed rates used to be higher than adjustable rates, but 30-year terms have become the better deal recently.

Your monthly payments will be lower than on a shorter-term mortgage. You're spreading payments out over a longer period of time, so you'll pay less each month.

You'll pay more in interest in the long term with a 30-year mortgage than you would for a 15-year mortgage, because a) the rate is higher, and b) you'll be paying interest for longer.

How do 15-year fixed-rate mortgages work?

With a 15-year fixed mortgage, you'll own your home outright after just 15 years.

A 15-year fixed-rate mortgage is more affordable than a 30-year term in the long run. You'll get a lower 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 loan principal in a shorter amount of time, so you'll pay more every month.

How do 10-year fixed-rate mortgages work?

The 10-year fixed rates are usually comparable to 15-year rates, but you'll pay off your mortgage five years earlier.

A 10-year term isn't super common for an initial mortgage, but you may refinance into a 10-year mortgage.

How do 5/1 ARMs work?

While a fixed-rate mortgage locks in your interest rate for the entire life of your loan, an adjustable-rate mortgage, keeps your rate the same for the first few years, then changes it periodically, usually once per year. Your rate could increase or decrease, depending on the economy.

With a 5/1 ARM, your rate stays the same for the first five years, then changes once a year.

ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. The 30-year fixed rates are comparable to or lower than ARM rates. It could be in your best interest to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate increasing 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.

Is might be the right time to get a mortgage or refinance

It could be a good day to get a fixed rate. Fixed mortgage rates are at all-time lows right now, and you don't want to risk a rate increase later with an ARM.

It could be a good time to get a mortgage or refinance, but you don't necessarily need to hurry to get a good rate if you aren't quite ready.

"There's no reason to wait or rush," Ishbia said. "Just make sure you do it right."

He said this means shopping for the right lender or visiting a mortgage broker who can set you up with a lender that's the best fit for you. He also said you may have plenty of time to improve your finances. The better your financial profile, the lower a rate you can get.

To get a great interest rate, consider taking some of the following steps before submitting an application:

  • Improve your credit score. Making all your payments on time is the most important factor in boosting your score, but paying down debts and letting your credit age can also help. Consider requesting a copy of your credit report to see your score and check for any errors that could be hurting you.
  • Save more for a down payment. You may be able to put down as little as 3% on a conventional mortgage, but most lenders will give you a lower rate with a higher down payment. Rates should stay low for a while, so you probably 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 you feel comfortable with your financial situation, Ishbia said this could be a great time to get a mortgage, because rates are at all-time lows overall.

Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

Source: Read Full Article