by Maurie Backman | June 23, 2020
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Now may be a good time to lock in a mortgage, and these are some options to choose from.
Mortgage rates can change on a weekly, and even a daily basis, so if you're in the market for a new home, it's smart to keep track of what rates look like. Though rates for the 30-year and 15-year mortgage climbed a bit today compared to where they were a week ago, rates for the 20-year fixed mortgage and 5/1 ARM dropped.
This is what today's rates look like:
|30-Year Fixed Mortgage Rate||3.61%||3.7%|
|20-Year Fixed Mortgage Rate||3.16%||3.24%|
|15-Year Fixed Mortgage Rate||2.96%||3.11%|
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The average interest rate for a 30-year fixed mortgage is 3.61%. For a $200,000 mortgage, that means you're looking at a monthly payment of $1,469. Given that the average rate for a 30-year fixed loan was well over 4% earlier in the year, 3.61% is a pretty good rate to lock in for the next three decades.
The average interest rate for a 20-year fixed mortgage is 3.16%, which is now substantially lower than the interest rate you'll pay on a 30-year fixed mortgage. For a $200,000 mortgage, that means you're looking at a monthly payment of $1,684. The interest rate for a 20-year fixed mortgage fell 0.20% in the course of the past week, so if you're able to swing the monthly payment that comes with a 20-year loan, now's a good time to lock in.
The average interest rate for a 15-year fixed mortgage is 2.96%, which is substantially lower than what you'll pay for a 30-year fixed mortgage. However, it is a bit higher than what rates looked like last week. For a $200,000 mortgage, you're now looking at a monthly payment of $1,936. That's a much higher payment than what you'll be liable for with a 30- or 20-year loan, but you'll also fork over a lot less interest over the course of that loan.
The average interest rate for a 5/1 ARM is 3.29%, which means that 3.29% rate is guaranteed for the first five years of your mortgage. From there, however, your rate will adjust once per year. It may go up, but it could also go down -- it depends on market conditions and the index your lender uses to calculate adjustments. Though the average rate for a 5/1 ARM was closer to 3% in the first half of May, rates also hovered around 3.4% earlier this month. As such, 3.29% is a decent rate to lock in for a 5/1 ARM based on recent numbers.
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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. 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.
No matter what decision you make, seek out offers from different mortgage lenders to increase your chances of snagging the most favorable rate given your credit score, debt-to-income ratio, income, and loan amount. Different lenders have varying requirements when it comes to borrowing, and shopping around could help you save money on your housing costs for many years to come.
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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