by Maurie Backman | Sept. 3, 2020
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Mortgage rates are still very competitive. Should you apply now?
Mortgage rates are always changing, so it's important to keep tabs on how they look from day to day. Applying at just the right time could actually save you a lot of money in the course of repaying your home loan. Here's what today's mortgage rates look like:
|30-Year Fixed Mortgage Rate||2.955%||3.107%|
|20-Year Fixed Mortgage Rate||2.853%||3.019%|
|15-Year Fixed Mortgage Rate||2.490%||2.664%|
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The average 30-year mortgage rate today is 2.955%. Now this isn't the first time the 30-year loan has dropped below 3%, but it means you have a great opportunity to snag some very low monthly payments. Based on today's rate, for a $200,000 mortgage, you'll be looking at a monthly payment of $838.04 for principal and interest on your loan. Some people have a higher mortgage payment because they pay their property taxes and homeowners insurance through their mortgage lender, so if you do the same, you'll owe more than $838.04 if you take out a $200,000 mortgage at 2.955%.
The average interest rate for a 20-year fixed mortgage is 2.853%. For a $200,000 mortgage, today's rate will result in a monthly payment of $1,094.83 for principal and interest on your loan. Clearly, that's a lot more than what you'll pay with a 30-year mortgage, despite the lower rate, but because you'll be paying off your loan in less time, you'll save yourself a lot of money on interest.
The average interest rate for a 15-year fixed mortgage is 2.490%. For a $200,000 mortgage, today's rate gives you a monthly payment of $1,333.20 for principal and interest. You'll notice that that's a lot more than what your monthly payment would be with a 30-year mortgage. But if you have the room in your budget to swing that higher amount, you'll save a ton on interest, and you'll also be housing debt-free in just a decade and a half.
The average interest rate for a 5/1 ARM is 3.498%. Not only is that an increase from earlier on in the week, but it's also much higher than the average 30-year mortgage. And that's why now's not a great time to sign up for a 5/1 ARM. With a 5/1 ARM, you only lock in your rate for a five-year time frame, and from there, your rate can change once a year. While it's true that your rate can go down, it can also go up. As such, there's little sense in taking that risk when you're not reaping initial savings via a lower mortgage rate. And since you can snag a 30-year fixed loan for under 3% right now, the 5/1 ARM just doesn't pay.
A mortgage rate lock guarantees you a certain 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 generally pay a fee to lock in your mortgage rate, but that way, you're protected in case rates climb between now and when you actually close on your mortgage.
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 rates -- especially with the 30-year mortgage falling below 3% and the 15-year mortgage coming in at under 2.5%. 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 still extremely low, we don't know if rates will go up or down over the next few months. As such, it pays to:
If you're ready to lock in a mortgage based on today's rates, don't just settle for the first offer you're given. Rather, call a bunch of different mortgage lenders and see what rates they can give you based on factors like your loan amount, income, and credit score. And also, while you're doing your rate shopping, pay attention to what you're being quoted in closing costs. It could be that two lenders are able to offer the same rate, but if one comes with lower closing costs, it's worth reaping that savings.
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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