by Christy Bieber | Sept. 7, 2020
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If you're in the market for a new home, you can lock in a 30-year fixed mortgage today for a rate lower than 3.00%.
If you're purchasing or refinancing a home right now, there has never been a better time to secure a mortgage loan. Mortgage rates have fallen to lows that homeowners could barely have imagined just a few short years ago, and these low rates have made monthly payments extremely affordable.
To see just how low rates are, check out today's average mortgage rates for Monday Sept. 7.
|30-Year Fixed Mortgage Rate||2.932%||3.096%|
|20-Year Fixed Mortgage Rate||2.978%||3.134%|
|15-Year Fixed Mortgage Rate||2.490%||2.704%|
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A 30-year fixed-rate mortgage under 3.00% was previously unheard of. But in recent weeks, rates have broken this threshold multiple times -- including today. In fact, average mortgage rates for a 30-year loan for Sept. 7 are just 2.932%. This is a rate well worth locking in. Securing a loan at this rate would mean the monthly payment for principal and interest on a $200,000 loan would be just $836 and total loan costs would come in at $300,921.
Mortgages with shorter terms usually offer lower rates than those with longer terms, but that's not the case with the 20-year mortgage right now. Still, the average interest rate on a 20-year fixed-rate loan is just 2.978% as of Sept. 7, which is barely above the rate on a 30-year loan.
Even at this slightly higher rate, total loan repayment costs will be much lower if you pay interest for a decade less -- although your monthly payment would be higher because you're retiring your debt so much sooner. If you lock in at today's average rate and borrow $200,000, you'd be looking at a monthly payment of $1,107 and total loan costs of $265,679.
While a 20-year mortgage has slightly higher average rates than a 30-year, the rates on a 15-year loan are much lower. In fact, the average interest rate for Sept. 7 is just 2.490%. Locking in at this rate would mean a $200,000 loan would come with payments of $1,333 and total loan costs of $239,875. You'd pay under $40,000 in interest for the entire life of your loan and save substantially compared with the 30-year option -- but of course you'd need to be able to afford these higher monthly payments.
An ARM is an adjustable-rate mortgage. And a 5/1 ARM, specifically, is a loan that provides a fixed rate for the first five years which then adjusts once annually if the financial index the rate is tied to moves up or down.
It can make sense to take out an ARM in some circumstances when it comes with a low introductory rate. But with the average interest rate of 3.38% well above what you'd pay for a 30-year mortgage, there's little reason to gamble on a loan with a rate adjustment in five years -- especially since rates are so low right now it's hard to imagine it will adjust anywhere but up.
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.
Your credit score and other financial credentials will impact the rates you're offered, but different lenders have different qualifying requirements. Before locking in, make sure you shop around and get quotes from several different mortgage lenders to maximize your chances of securing the most favorable rate.
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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