Today’s best mortgage and refinance rates: Tues, Dec 29, 2020 | Rates stay low


Mortgage rates have mostly held steady since last Tuesday, but they’re trending downward overall.

If you want to buy a home soon, you may want to choose a fixed-rate mortgage over an adjustable-rate mortgage.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that typically there’s an advantage to an adjustable-rate mortgage, in which the rate fluctuates after an initial period. That advantage is usually a lower rate for the fixed period.

However, he points out that ARMs don’t currently follow that pattern. Fixed rates are currently better than adjustable rates, because lenders want to keep customers banking with them for as long as possible. Even though the 30-year fixed rate and 5/1 adjustable rate are about the same right now, you’d risk your 5/1 ARM rate increasing in five years, whereas you could lock in a low rate for decades with a 30-year term.

Rates from the Federal Reserve Bank of St. Louis.

Mortgage rates have stayed the same since last Tuesday, and they’ve dropped since this time last month.

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

Rates from the Federal Reserve Bank of St. Louis.

Lower rates typically signal a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates will probably stay low.

Rates from Bankrate.

Refinance rates have held steady since last Tuesday, and they’ve dropped since November 29.

With a 30-year fixed mortgage, you’ll pay off your loan over 30 years, and your rate stays locked in for the entire time. 

You’ll pay a higher interest rate on a 30-year fixed mortgage than on 15-year or 10-year fixed-rate mortgages. For a long time, you’d also pay a higher rate on a 30-year fixed loan than on a 5/1 ARM. But right now, 30-year fixed rates the better deal.

Monthly payments are lower for 30-year terms than for shorter terms, because you’re spreading payments out over a longer period of time.

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 rate is higher, and b) you’ll be paying interest for longer.

With a 15-year fixed mortgage, you’ll pay down your loan over 15 years and pay the same rate the whole time.

The 15-year mortgage rates are lower than 30-year mortgage rates. Between the lower rates and paying off the loan in half the time, you’ll pay less in the long run on a 15-year mortgage than on a longer term.

However, your monthly payments will be higher on a 15-year loan than on a 30-year loan. You’re paying off the same principal amount in a shorter amount of time, so you’ll pay more each month.

It isn’t very common to get a 10-year term for an initial mortgage, but you may refinance into a 10-year mortgage.

Lenders charge similar interest rates on 10-year and 15-year terms, but you’ll pay off your mortgage sooner with a 10-year term.

With an adjustable-rate loan, your rate stays the same for the first few years, then changes periodically. Your rate is locked in for the first five years on a 5/1 ARM, then your rate increases or decreases once per 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.

It could be a good day apply for a mortgage, but don’t worry if you aren’t ready just yet. Mortgage rates should stay low for months (if not years) so you’ll likely have plenty of time to take advantage of low rates.

To get the best mortgage rate possible, consider working to improve your finances. Here are some tips for snagging a low mortgage rate:

  • Improve your credit score. Making all your payments on time is the most important part of boosting your score, but paying down debts and letting your credit age also help. You may want to request a copy of your credit report to review your report for any errors.
  • Save more for a down payment. Depending on which type of mortgage you get, you may not even need a down payment to get a loan. But lenders typically offer you a better rate when you have a bigger down payment. Because rates should stay low for a while, 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 improve your ratio, pay down debts or consider opportunities to increase your income.

If your finances are in a good place, you could land a low mortgage rate right 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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