by Maurie Backman | Aug. 18, 2020
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Mortgage rates are still competitive. It could be a good time to lock one in.
Mortgage rates can change from day to day, so if you hope to buy a new home in the near future, it pays to keep tabs on them. Here's what mortgage rates are averaging right now, but keep in mind that these will not necessarily be the rates you secure, as that will depend on how strong a borrowing candidate you are:
|30-Year Fixed Mortgage Rate||3.042%||3.203%|
|20-Year Fixed Mortgage Rate||3.021%||3.172%|
|15-Year Fixed Mortgage Rate||2.610%||2.818%|
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The average interest rate for a 30-year fixed mortgage today is 3.042%. That's a great rate, though it is worth noting that it represents a mild increase from last week, when the 30-year mortgage was available at under 3%. Still, with this rate, for a $200,000 mortgage, you'll be looking at a monthly payment of $848.39 for principal and interest. In other words, that $848.39 does not include property taxes or other recurring monthly expenses that come with owning a home.
The average interest rate for a 20-year fixed mortgage is 3.021% -- up only a touch from last week. For a $200,000 mortgage, you'll have a monthly payment of $1,111.60 for principal and interest. Now that's more than what you'll pay on a 30-year loan, but you'll also save a ton of money on interest in the course of repaying your mortgage by opting for a 20-year term.
The average interest rate for a 15-year fixed mortgage is 2.610%. That, too, is just a tiny increase from last week. For a $200,000 mortgage, today's rate gives you a monthly payment of $1,344.53 for principal and interest. Clearly, that's a lot more than the $848.39 you'll pay with a 30-year loan, but you'll also pay a lot less interest -- and get done with your mortgage in half the time.
The average interest rate for a 5/1 ARM is 3.275%, and generally speaking, that is a competitive rate to lock in for five years. But since the average rate for a 30-year fixed mortgage is lower, a 5/1 ARM makes little sense right now. The whole reason to get an ARM is to snag a discount on your mortgage rate. If you aren't able to do that, then why take the risk of having your rate go up after five years?
A mortgage rate lock guarantees you a specific rate for a preset period of time -- usually 30 days, but you may be able to lock in your rate for up to 60 days. You'll usually pay a fee to lock in your mortgage rate, but that way, you're protected if there's a big jump in rates between now and the date you close on your home loan.
If you plan to close on your home within the next month, then it pays to lock in your mortgage rate based on how today's numbers look. But if your closing is more than a month away, you may want to choose a floating rate lock instead for what will generally be a higher fee, but one that could save you money in the long run. A floating rate lock allows you to snag a lower rate on your mortgage if rates fall prior to your closing, and while today's rates are certainly competitive, we don't know if rates will drop or climb over the next few months. As such, it pays to:
Either way, before you lock in your rate, shop around with different mortgage lenders. There are multiple factors that go into calculating your mortgage rate: your credit score, outstanding debt, income, and loan amount, to name a few. Each lender sets its own requirements, so the more offers you round up, the better your chances of snagging a truly competitive rate.
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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