Today's best mortgage and refinance rates: Thursday, October 15, 2020

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The 30-year and 15-year fixed mortgage rates have decreased since this time last week, and adjustable rates have increased by just one basis point. The 30-year refinance rates are up, and 15-year and 10-year rates are down.

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

A fixed-rate mortgage locks in your rate for the entire life of the loan. An adjustable-rate mortgage keeps your rate the same for the first few years, then adjusts it once per year. Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that typically there's an advantage to an adjustable-rate mortgage, like a lower interest rate.

However, he points out that ARMs don't currently follow that pattern. Fixed rates are better than adjustable rates right now, because lenders want to keep customers banking with them for as long as possible. The 30-year fixed rate is lower than the 5/1 ARM rate this week. And 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.

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

The best mortgage rates Thursday, October 15, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.81%2.87%2.86%
15-year fixed2.35%2.37%2.37%
5/1 ARM2.90%2.89%3.11%

Rates from the Federal Reserve Bank of St. Louis.

Fixed mortgage rates have decreased since last Thursday, and 5/1 adjustable rates have increased by one basis point. Rates are down since this time last month.

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 typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.81%3.33%3.57%
15-year fixed2.35%2.77%3.05%
5/1 ARM2.90%3.40%3.35%

Rates from the Federal Reserve Bank of St. Louis.

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 Thursday, October 15, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed3.13%3.11%3.07%
15-year fixed2.59%2.60%2.53%
10-year fixed2.60%2.63%2.59%

Rates from Bankrate.

Refinance rates haven't changed much since last week. The 30-year rates are up by a couple basis points, and 15-year and 10-year rates are down. Refinance rates have increased across the board since this time last month.

How do 30-year fixed rates work?

A 30-year fixed mortgage comes with a higher interest rate than a 15-year fixed mortgage. For a long time, 30-year fixed rates were higher than 5/1 adjustable rates. But right now, 30-year fixed rates are lower.

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

However, you'll pay more in interest with a 30-year term than you would for a 15-year or 10-year mortgage, because a) the rate is higher, and b) you'll be paying interest for longer.

How do 15-year fixed rates work?

You'll pay less on a 15-year mortgage than on a 30-year loan, for two reasons: 15-year fixed rates are lower, and you'll pay off the mortgage in half the time.

Your monthly payments will be higher than with a 30-year mortgage, though. You're squeezing the same loan principal into a shorter amount of time, so you'll pay more each month.

How do 10-year fixed rates work?

Some lenders offer 10-year fixed-rate terms for initial mortgages, but it's more common to get a 10-year term on a refinanced loan.

You'll pay a similar rate on a 10-year fixed-rate loan as you would on a 15-year mortgage, but you'll pay off the loan sooner.

How do 5/1 ARMs work?

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 time 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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