by Maurie Backman | Aug. 21, 2020
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Mortgage rates are still competitive. Should you lock in your rate today?
Mortgage rates are constantly changing. If you're looking to buy a new home right now, you should know that housing prices are higher than usual due to limited inventory. That's why it's important to snag as low a mortgage rate as possible. Doing so could help compensate for the fact that you may end up paying more for a home.
|30-Year Fixed Mortgage Rate||2.998%||3.174%|
|20-Year Fixed Mortgage Rate||3.003%||3.154%|
|15-Year Fixed Mortgage Rate||2.574%||2.772%|
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The average interest rate for a 30-year fixed mortgage today is back below 3% -- specifically, it's at 2.998%. That's a really outstanding rate to lock in for 30 years, and if you have solid credit, it could be yours. With that rate, for a $200,000 mortgage, you'll be looking at a monthly payment of $843.21, but that's just your principal and interest. Other expenses, like property taxes, homeowners insurance, and private mortgage insurance will be extra.
The average interest rate for a 20-year fixed mortgage is 3.003%. For a $200,000 mortgage, that will leave you with a monthly payment of $1,109.20 for principal and interest. Since the average interest rate for a 30-year mortgage is actually lower today than the average 20-year rate, it could pay to stick with the former if you're worried about swinging a higher monthly payment. Usually, the benefit of taking on a mortgage with a shorter term is to snag a lower interest rate. On the other hand, with a 20-year mortgage, you'll pay your home loan off quicker, and you'll save yourself a lot of money in interest over the course of your repayment period.
The average interest rate for a 15-year fixed mortgage is 2.574%. That's a slight decrease from yesterday and a nice little dip compared to earlier in the week. For a $200,000 mortgage, today's rate gives you a monthly payment of $1,339.99 for principal and interest. If you can swing the higher monthly payment, you'll snag a much lower rate for a 15-year loan than you will with a 30-year loan.
The average interest rate for a 5/1 ARM is 3.272%, and while that's competitive in general, you'll notice that it's higher than what the 30-year mortgage is averaging. And that means you're generally better off locking in a 30-year mortgage rather than pursuing an ARM. The whole point of a 5/1 ARM is to snag a lower interest rate right now in exchange for taking on the risk of having your rate increase annually after your initial five years are up. But since you're not getting that discount, an ARM makes little sense.
A mortgage rate lock guarantees you a specific interest rate for a specific 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 rates climb between now and when you close on your home loan.
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 outstanding rates. But if your closing is more than 30 days 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 very low, we don't know if rates will go up or down over the next few months. As such, it pays to:
Before you lock in your mortgage rate, it's beneficial to get quotes from different mortgage lenders to see what offers you're eligible for. Lenders take a number of factors, like your credit score, debt-to-income ratio, and loan amount into account when giving out rates, so the more quotes you get, the better your chances of walking away happy with the number you lock in.
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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