by Maurie Backman | Sept. 1, 2020
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Mortgage rates are still holding steady at competitive levels, so it may be time to apply for one.
Mortgage rates change all the time, so if you're looking to buy a home, you'll want to pay attention to how they're trending. If you see rates dip one day, that could be the day to lock in. This is what today’s rates look like:
|30-Year Fixed Mortgage Rate||3.022%||3.184%|
|20-Year Fixed Mortgage Rate||3.011%||3.167%|
|15-Year Fixed Mortgage Rate||2.539%||2.750%|
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The average 30-year mortgage rate today is 3.022%. Based on that, for a $200,000 mortgage, you'll be looking at a monthly payment of $845.80 for principal and interest on your loan. To be clear, that amount does not include property taxes, private mortgage insurance, HOA fees, and any other recurring monthly expenses that come with owning a home.
The average interest rate for a 20-year fixed mortgage is 3.011%. For a $200,000 mortgage, today’s rate will give you a monthly payment of $1,110.40 for principal and interest on your loan. Now that’s more than what you’ll pay with a 30-year mortgage, but you'll also have a much shorter repayment period, which means you stand to save a bundle on interest.
The average interest rate for a 15-year fixed mortgage is 2.539%. For a $200,000 mortgage, today’s rate gives you a monthly payment of $1,337.72 for principal and interest. Not everyone can swing the monthly payment that comes with a 15-year loan, but if your goal is to knock out your housing debt quickly and pay as little interest as possible, then a 15-year mortgage may be for you, especially at today's phenomenal rate. If you can't swing a 15-year loan, you can always sign a 20- or 30-year mortgage instead, but then make extra payments toward it as you're able. That, too, will save you money on interest.
The average interest rate for a 5/1 ARM is 3.330%. Not only is that an increase from last week, but it's also quite a bit higher than the average 30-year mortgage. It's for the latter reason that a 5/1 ARM doesn't make sense. The whole point of an ARM is to save on your rate in the near term in exchange for taking the risk that your rate will climb over time. In this case, it makes little sense to lock in a 3.330% rate for five years when you could instead sign a 30-year mortgage and pay less for the next five years.
A mortgage rate lock guarantees you a certain interest rate for a certain period of time -- usually 30 days, but you may be able to secure your rate for up to 60 days. You'll generally pay a fee to lock in your mortgage rate, but that way, you're protected if rates climb between now and when you close on your mortgage.
If you plan to close on your home within the next 30 days, then it pays to lock in your mortgage rate based on today's rates. But if your closing is more than a month away, you may want to choose a floating rate lock instead for what will usually be a higher fee, but one that could save you money in the long run. A floating rate lock lets you secure a lower rate on your mortgage if rates fall prior to your closing, and while today's rates are still extremely low, we don't know if rates will go up or down over the next few months. As such, it pays to:
If you’re thinking of locking in a mortgage today, be sure to reach out to different mortgage lenders for offers rather than accept the first rate you're presented with. You may find that with one lender, your credit score gets you a lower rate than with another, so don't be shy about soliciting offers. It could also pay to enlist the help of a mortgage broker, who can do the legwork involved in getting those offers for you. That way, you're basically making a single call instead of sinking hours into the process.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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