by Christy Bieber | Aug. 24, 2020
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With rates remaining near record lows, now may be a good time to lock in a mortgage.
There's good news and bad news for homebuyers. While home prices have hit record highs, mortgage rates remain near record lows. This means buyers will have to shop carefully for a new home to make sure they're paying a fair price, but should be able to qualify for a very affordable mortgage. In fact, check out today's mortgage rates for Aug. 24, 2020 to see what rates you might be able to lock in.
|30-Year Fixed Mortgage Rate||2.989%||3.134%|
|20-Year Fixed Mortgage Rate||2.963%||3.107%|
|15-Year Fixed Mortgage Rate||2.545%||2.745%|
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A 30-year fixed rate mortgage rate below 3.00% is an extremely low rate and is one that's well worth locking in for most homebuyers. With an average rate for a 30-year fixed rate mortgage as low as 2.989% on Aug. 24, a $200,000 loan would come with a monthly payment of just $842 for principal and interest (not including property taxes and insurance). Total loan costs would add up to $303,128. Because your rate is fixed, you'd have the certainty of knowing your monthly payments and interest cost would never change over the life of the loan.
Rates for a 20-year mortgage loan are just below those for a 30-year loan. However, total interest costs will be much lower and monthly payments a bit higher with this option because you're repaying your mortgage a full decade sooner. If you secure a 20-year mortgage at today's average rate of 2.963%, your monthly payment would be $1,105 but total loan costs would come in at $263,319. This rate is a very competitive one that's likely worth locking in.
The average interest rate for a 15-year mortgage is just 2.545% as of Aug. 24, which is a rock bottom rate that many borrowers would do well to lock in. Because you're paying off your loan in such a short time, monthly payments would still be quite a bit higher for a 15-year loan than a 30-year one, even though the interest rate is much lower. In fact, a $200,000 loan at this rate would come with a monthly payment of $1,338. But total loan costs of just $240,807 mean you'd save more than $62,321 compared with a 30-year loan.
Unlike the other loans on this list, a 5/1 ARM doesn't provide a fixed rate for the life of the loan. In fact, the name 5/1 ARM stands for an adjustable-rate mortgage in which your interest rate is locked in for the first five years and can then adjust once each year thereafter. ARMs make sense if they enable you to get a low introductory interest rate and you plan to move or refinance before the rate begins adjusting, or if you think rates will go down over time. With rates near record lows now and the average interest rate of 3.285% on a 5/1 ARM coming in above the average rate on a 30-year loan, most buyers would be far better off with a fixed-rate loan instead.
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 generally pay a fee for a mortgage rate lock, but in exchange, you're protected in the event that there's a substantial jump in rates between now and your loan closing date.
If you plan to close on your home within the next month, then it could pay to lock in your rate based on how today's numbers look, and also based on recent rate fluctuations. Today's rates are actually quite competitive across the board, so no matter what loan term you're interested in, you have a chance to lock in a good deal.
However, 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 a potentially worthwhile one. A floating rate lock allows you to snag a lower rate on your mortgage if rates fall prior to your closing, and given the way rates have moved in recent weeks, there's a chance they could go lower in time.
Whether you decide to lock in your rate now or wait to see how rates change over the coming weeks, you should always shop around and get quotes from several mortgage lenders before you decide who to borrow from. With different lenders having differing requirements for your credit score and setting their own individual rates, shopping around can pay off.
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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