Today's best mortgage and refinance rates: Monday, October 12, 2020

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Mortgage rates have fluctuated by just one basis point across the board since last Monday. Refinance rates for 30-year mortgages have risen since last week, but remain the same (or nearly the same) for 15 and 10-year mortgages.

Rates are low overall, so it could be a good time to refinance or get a mortgage. A fixed rate is probably a better deal than an adjustable rate right now, though.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that adjustable-rate mortgages are becoming less advantageous for borrowers. ARM rates are starting higher than fixed-rate mortgages, and you'd risk your rate increasing down the road. It's probably better to lock in a historically low interest rate now with a fixed-rate loan.

If your finances are solid, then it could be a good time to get a fixed-rate mortgage or refinance.

The best mortgage rates Monday, October 12, 2020

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 2.87% 2.88% 2.86%
15-year fixed 2.37% 2.36% 2.37%
5/1 ARM 2.89% 2.90% 3.11%

Rates from the Federal Reserve Bank of St. Louis.

The 30-year fixed rates and 5/1 adjustable rates have decreased by just one basis point since last Monday, and 15-year fixed rates have increased by a basis point. 

The 30-year fixed rates have gone up by one basis point since last month. The 15-year fixed rates have held steady, and the 5/1 adjustable rates have dropped.

Mortgage rates are low in general. The trend downward becomes more apparent when you look at rates from 6 months and a year ago:

Mortgage type Average rate today Average rate 6 months ago Average rate 1 year ago
30-year fixed 2.87% 3.33% 3.57%
15-year fixed 2.37% 2.77% 3.05%
5/1 ARM 2.89% 3.40% 3.35%

Rates from the Federal Reserve Bank of St. Louis.

This time last year, average rates were well over 3%. Now rates have been below 3% for weeks.

Several factors affect mortgage rates. Decreasing rates are usually a sign of a struggling economy. As the coronavirus pandemic and economic crisis continue, rates will likely stay relatively low.

The best refinance rates Monday, October 12, 2020

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 3.18% 3.04% 3.10%
15-year fixed 2.59% 2.60% 2.54%
10-year fixed 2.63% 2.63% 2.61%

Rates from Bankrate.

The 30-year mortgage refinance rates have increased since last Friday, while the 15-year has dropped slightly. The 10-year refinance rates have stayed the same week over week. Refinance rates are up since this time last month.

30-year fixed mortgage rates

You'll pay a higher rate on a 30-year fixed mortgage than on a shorter term, like a 15-year fixed loan. In the past, 30-year fixed mortgages have charged higher rates than adjustable-rate mortgage. But right now, 30-year mortgages are more affordable than adjustable mortgages.

Your monthly payments will be relatively low, because you're spreading payments out over a longer period of time than with a shorter-term loan.

The trade-off is that you'll pay more in interest than you would with a shorter-term mortgage, because a) the rate is higher, and b) the interest is also spread out over a longer amount of time.

15-year fixed mortgage rates

A 15-year fixed-rate mortgage charges a lower interest rate than a 30-year mortgage. You'll pay less over time because a) the rate is lower, and b) you're paying off your mortgage in half the time.

The down side is the higher monthly payments. Because you're squeezing the same principal into less time, you'll pay more each month than you would with a 30-year loan.

10-year fixed mortgage rates

It isn't very common to get a 10-year fixed rate on an initial mortgage. But you might refinance into a 10-year mortgage after you've paid down some of your loan.

The 10-year fixed rates are comparable to 15-year fixed rates, but you'll pay off your loan sooner.

5/1 adjustable mortgage rates

While a fixed-rate mortgage locks in your rate for the entire loan term, an adjustable-rate mortgage locks in the rate for the first few years, then changes it periodically. With a 5/1 ARM, your rate stays the same for the first five years, then increases or decreases once per year.

ARM rates are low right now, but you still might want to go with a fixed-rate mortgage instead. 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 with an ARM.

Adjustable rates used to be lower than fixed rates during the introductory rate period, but this is no longer the case. This means ARMs are less beneficial than they used to be.

If you're considering an ARM, then you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.

It might be a good day to get a mortgage or refinance

This could be a good time to refinance if you have a strong financial profile. Refinance rates have been inching upward over the past few weeks, even if only by a basis point here and there. You may want to refinance while you can lock in as low a rate as possible.

Another reason you may want to refinance now? Starting December 1, 2020, most borrowers will pay a 0.05% fee for refinancing. If you lock in your rate before December 1, then you can avoid paying this closing fee.

But you still might want to hold off on refinancing if your credit score and debt-to-income ratio need improvement. A low credit score or high DTI could lead to a higher interest rate that costs you more than a 0.05% fee in the long run.

It could be a good time to get a fixed-rate mortgage, because fixed mortgage rates are at historic lows right now. But English doesn't recommend applying for an adjustable-rate mortgage.

"I can't see one good reason why someone would choose to go with an ARM versus a 30-year fixed rate in today's market," English said. "Why take the risk when you can get a better rate in a 30-year loan?"

If you want to apply for a new mortgage, then you don't necessarily need to rush. Rates will likely stay low well into 2021, if not longer. If you want to snag the lowest rate, consider taking some of the following steps before submitting an application:

  • Increase your credit score by making payments on time, paying down debt, and letting your credit age. A score of at least 700 will help you out — but the higher, the better.
  • Save more for a down payment. You may be able to place as little as 3% down for a conventional loan. But the higher your down payment, the lower your rate will likely be. Because rates should stay low for a while, you probably have time to save more.
  • 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. Most lenders want to see a DTI of 36% or less, but an even lower DTI can result in a better rate. Two ways to lower your DTI are to earn more or pay down debts.

If you feel comfortable with your financial situation, now could be a good time to get a fixed-rate mortgage or refinance.

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