by Maurie Backman | Sept. 4, 2020
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Mortgage rates are still very low, which means you have a chance to capitalize on a great opportunity.
Mortgage rates change all the time, so if you're in the market for a new home, timing your application just right could be a major money-saver. This is what mortgage rates look like today:
|30-Year Fixed Mortgage Rate||2.953%||3.105%|
|20-Year Fixed Mortgage Rate||2.989%||3.133%|
|15-Year Fixed Mortgage Rate||2.483%||2.680%|
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The average 30-year mortgage rate today is 2.953%, which is slightly lower than it was yesterday. For context, a 30-year mortgage at under 3% is an excellent deal, so if you qualify for today's average rate, it's worth jumping on that opportunity. For a $200,000 mortgage, a rate of 2.953% gives you a monthly payment of $838.04 for principal and interest on your loan. Keep in mind, though, that this figure doesn't include property taxes, homeowners insurance, or the other recurring expenses you might face.
The average interest rate for a 20-year fixed mortgage is 2.989%, which is actually a small increase from yesterday. For a $200,000 mortgage, today's rate will give you a monthly payment of $1,107.99 for principal and interest on your loan. What's surprising is that the average rate for a 20-year mortgage is actually higher than that of a 30-year loan. Usually, the shorter your loan term, the lower your rate. But despite that slightly higher rate, a 20-year mortgage will leave you paying less interest over the life of your loan as compared to a 30-year mortgage.
The average interest rate for a 15-year fixed mortgage is 2.483%, which is a slight dip from yesterday. For a $200,000 mortgage, today's rate gives you a monthly payment of $1,332.07 for principal and interest. Clearly, that's a lot more than what your monthly payment would be with a 30-year mortgage. But if you sign up for a 15-year loan at today's rates, you'll save a huge pile of interest over the life of your repayment period.
The average interest rate for a 5/1 ARM is 3.492%. While that's a bit lower than yesterday, now's still not a great time to get an adjustable-rate mortgage because the 30-year mortgage can be had much cheaper. Usually with an ARM you get a lower rate up front, and in exchange, you take the risk that your rate might rise over time (after the initial five-year period in this case). Since you're not getting that discounted rate right now, an ARM makes little sense.
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 in case rates climb between now and when you actually 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 -- especially with the 30-year mortgage sitting below 3% and the 15-year mortgage holding steady at under 2.5%. 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 tempted to lock in a mortgage based on the rates you're seeing today (which you really should be -- they're fantastic), be sure to solicit multiple offers before agreeing to one. Different mortgage lenders set their own criteria, and so you might snag a better rate based on your credit score with one lender than with another. And remember, you can always ask one lender to match the offer another gives you. Doing so could be a strategic move that lets you snatch up the best rate while also signing a loan with the lowest closing costs available.
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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