by Maurie Backman | Aug. 25, 2020
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Mortgage rates are still nice and low. Is it time for you to apply for one?
Mortgage rates are always in flux, so if you're in the market for a new home, it pays to keep checking in to see what they look like. The lower your rate, the lower your monthly housing payments will be. Here's what today's mortgage rates are averaging:
|30-Year Fixed Mortgage Rate||3.097%||3.115%|
|20-Year Fixed Mortgage Rate||2.965%||3.113%|
|15-Year Fixed Mortgage Rate||2.573%||2.768%|
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The average interest rate for a 30-year fixed mortgage today has crept up just above 3% to 3.097%. Given that rates for the 30-year mortgage were averaging below 3% earlier in the month, this may seem like a disappointing rate to secure. But actually, it's still quite competitive. With today's rate, for a $200,000 mortgage, you'll be looking at a monthly payment of $853.60 for your principal and interest. But your actual monthly costs will be higher than that. Remember, you'll have other expenses to factor into your housing expenses, like homeowners insurance, property taxes, and private mortgage insurance if you don't make a 20% down payment on your home.
The average interest rate for a 20-year fixed mortgage is 2.965%. For a $200,000 mortgage, that will leave you with a monthly payment of $1,105.59 for principal and interest. If you can swing that higher amount, you'll save yourself money on interest throughout the life of your loan, and you'll also be debt-free sooner.
The average interest rate for a 15-year fixed mortgage is 2.573%. That's a slight decrease from last week. For a $200,000 mortgage, today's rate gives you a monthly payment of $1,339.99 for principal and interest. Clearly, that's a lot more than what you'll pay with a 30-year mortgage, but the upside is that you'll pay less total interest, and you'll also get to pay off your home in half the time.
The average interest rate for a 5/1 ARM is 3.255%, and while that's a competitive rate in general, it's higher than what the 30-year mortgage is averaging today. And that means you're generally better off locking in a 30-year mortgage than signing up for an ARM. With an ARM, you take the risk of your interest rate going up over time. If your initial interest rate isn't lower than that of a 30-year mortgage, then an ARM really doesn't make sense.
A mortgage rate lock guarantees you a specific 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 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 month, 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 nice and low, we don't know if rates will go up or down over the next few months. As such, it pays to:
Before you secure your mortgage rate, it pays to collect offers from different mortgage lenders to see what you qualify for. There are different factors that go into mortgage approval, including your credit score, debt-to-income ratio, and income level, so the more offers you round up, the greater your chances of snagging a competitive rate, and an affordable monthly mortgage payment to follow.
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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