Today's best mortgage and refinance rates: Wednesday, December 23, 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 dropped a little bit since last Wednesday, but not significantly. Rates are still very low overall.

Regardless of whether you're getting a new mortgage or refinancing, you may want to choose a fixed-rate mortgage over an adjustable-rate mortgage right now.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider ARMs aren't nearly as advantageous for borrowers as they used to be.

"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 your finances are in a good place, it could be a great day to apply for a fixed-rate mortgage.

Mortgage rates for Wednesday, December 23, 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 have decreased since last Wednesday, and adjustable rates have stayed the same. Mortgage rates have gone down across the board since this time last month.

Mortgage rates are at historic lows. The trend downward becomes more apparent 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 for Wednesday, December 23, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.93%2.91%2.99%
15-year fixed2.40%2.42%2.53%
10-year fixed2.42%2.43%2.56%

Rates from Bankrate.

15- and 10-year mortgage refinance rates have dropped by just one or two basis points since last Wednesday, while 30-year rates have gone up by two basis points. Across the board, rates have gone down a bit more significantly since last month.

How do 30-year fixed rates work?

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. 

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

Monthly payments are pretty low for a 30-year term, because you're spreading payments out over a longer period of time than you would with a 10-year or 15-year term.

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

How do 15-year fixed rates work?

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

A 15-year fixed-rate mortgage is less expensive than a 30-year term overall. The 15-year rates are lower, and you'll pay off the loan in half the amount of time.

Your monthly payments will be higher on a 15-year term than a 30-year term, though. You're paying off the same loan principal in half the time, so you'll pay more every month.

How do 10-year fixed rates work?

The 10-year fixed rates are similar to 15-year fixed 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 adjustable rates work?

A fixed-rate mortgage keeps your rate the same for the entire life of your loan, but an adjustable-rate mortgage locks in your rate for the first few years, then changes it periodically. Your rate could go up or down, depending on the economy.

A 5/1 ARM keeps your rate the same for the first five years, then changes it once per year.

ARM rates are at historic lows right now, but fixed rates are still the better deal. The 30-year fixed rates are often starting lower than ARM rates. It could be a good idea to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate going up 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.

Tips for getting a low mortgage rate

It could be a great time to get a fixed-rate mortgage, but you don't necessarily have to hurry. Mortgage rates should stay low well into 2021, if not longer, so you probably have time to improve your finances. Lenders tend to offer better rates to borrowers with stronger financial profiles.

Here are some tips for landing the best rate possible:

  • Boost 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 also help. You may want to request a copy of your credit report to see your score and check 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. But lenders tend to reward higher down payments with lower interest rates. Because rates should stay low for months (if not years), you likely 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 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.

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