by Maurie Backman | June 25, 2020
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Mortgage rates can change on a weekly, and even a daily basis, so if you're looking to buy a new home, you should keep tabs on what rates look like. Although rates for the 30-, 20-, and 15-fixed mortgages are higher today than what they looked like a week ago, the rate for the 5/1 ARM dropped.
This is what today's rates look like:
|30-Year Fixed Mortgage Rate||3.60%||3.68%|
|20-Year Fixed Mortgage Rate||3.42%||3.53%|
|15-Year Fixed Mortgage Rate||2.96%||3.10%|
The average interest rate for a 30-year fixed mortgage is 3.60%, down just a nudge from a couple of days ago. For a $200,000 mortgage, that means you're looking at a monthly payment of $1,468. The average rate for a 30-year fixed loan was well over 4% earlier in the year, so 3.60% is a pretty good rate to lock in on a mortgage you could be paying off for the next three decades.
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The average interest rate for a 20-year fixed mortgage is 3.42%. To be clear, that’s a competitive rate -- but it also represents a substantial jump from Tuesday, when the average rate for a 20-year mortgage was only 3.16%. Based on today's rate, for a $200,000 mortgage, you're looking at a monthly payment of $1,710.
The average interest rate for a 15-year fixed mortgage is holding steady this week at 2.96%, which is much lower than what you'll pay for a 30-year or 20-year fixed mortgage. For a $200,000 mortgage, that rate gives you a monthly payment of $1,936. Clearly, your monthly payment will be higher with this type of loan, but you'll also pay far less interest all-in than you will with a 30- or 20-year loan. And you'll be debt-free much sooner.
The average interest rate for a 5/1 ARM is 3.23%, which is a bit lower than what rates looked like just a couple of days ago. If you're not familiar with how adjustable-rate mortgages work, the first number represents the number of years your initial interest rate is guaranteed, and the second number represents the frequency at which your rate adjusts. In this case, you'd be looking at an interest rate of 3.23% for the first five years of your mortgage, after which your rate will adjust once annually. That adjustment could work out in your favor, though, as it's possible for your rate to go down. Meanwhile, 3.23% is a pretty good rate to lock in for the next five years.
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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. Case in point: The average rate for a 20-year mortgage jumped a lot in two days. Today's rate is still competitive, but you don't want to land in a scenario where rates start to trend higher in the next few weeks and you lose out on a better one.
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, try to get offers from different mortgage lenders to increase your chances of snagging the most favorable rate you're eligible for. Each lender sets its own requirements with regard to factors like credit score and income, and shopping around is the best way to snag a good deal on a loan you could end up paying for a very long time.
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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