Personal Finance Insider writes about products, strategies, and tips to help you make smart decisions with your money. We may receive a small commission from our partners, but our reporting and recommendations are always independent and objective.Mortgage and refinance rates have gone down since last Monday, except for 30-year fixed rates for new mortgages, which have increased by one basis point. Rates are down overall since last month.The 5/1 adjustable rates have decreased since last Monday, but they’re still higher than this time last month. Recently, adjustable rates have become more expensive than fixed rates.Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that typically there’s an advantage to an adjustable rate mortgage, in which the rate fluctuates after an initial period. That advantage is usually a lower rate for the fixed period.However, he points out that ARMs don’t currently follow that pattern. The 30-year and 15-year fixed rates are currently offering better rates than the 5/1 adjustable rate mortgage, because lenders want to keep customers banking with them for as long as possible.If your finances are in order, consider refinancing or getting a fixed-rate mortgage soon.The best mortgage rates Monday, September 21, 2020Mortgage typeAverage rate todayAverage rate last weekAverage rate last month30-year fixed2.87%2.86%2.99%15-year fixed2.35%2.37%2.54%5/1 ARM2.96%3.11%2.91%Rates from the Federal Reserve Bank of St. Louis.The 30-year fixed rates have increased by one basis point since last Monday, and 15-year fixed rates are down by two basis points. The 5/1 ARM rates have decreased, but they’re still higher than what you’d pay on a 30-year or 15-year fixed-rate term.The 30-year and 15-year fixed rates are down from this time last month, while 5/1 ARM rates are up by a few basis points.Mortgage rates are low overall. The trends become more apparent when you look at rates from 6 months and a year ago:Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago30-year fixed2.87%3.65%3.73%15-year fixed2.35%3.06%3.21%5/1 ARM2.96%3.11%3.49%Rates from the Federal Reserve Bank of St. Louis.Several factors affect mortgage rates. Decreasing rates are usually a sign of a struggling economy. As the coronavirus pandemic and economic crisis continue, rates will likely stay relatively low.The best refinance rates Monday, September 21, 2020Mortgage typeAverage rate todayAverage rate last weekAverage rate last month30-year fixed2.97%3.09%3.22%15-year fixed2.49%2.54%2.75%10-year fixed2.45%2.61%2.80%Rates from Bankrate.Refinance rates have decreased since last Monday and since this time last month.How 30-year fixed rates workYou’ll pay a higher rate on a 30-year fixed-rate mortgage than on shorter-term loans with fixed rates. Normally you’d also pay more for a 30-year fixed mortgage than for an adjustable-rate mortgage, but currently, a 30-year fixed mortgage is more affordable than a 5/1 ARM.Your monthly payments will be lower compared to the other types of loans, because your principal is spread out over a longer period of time.The downside is that you’ll pay more in interest than you would with a 15-year fixed term because a) the rate is higher, and b) your interest is also spread out over a longer period of time.How 15-year fixed rates workA 15-year fixed rate is lower than what you’ll pay for a 30-year mortgage. Monthly payments will likely be higher, because you’re paying off the principal in half the time.You’ll save money in the long run, though, because the rate is lower, and you’ll be making payments for a shorter amount of time.How 10-year fixed rates workA 10-year fixed-rate mortgage isn’t very common for an initial mortgage. But you might refinance into a 10-year mortgage after you’ve paid down some of your loan.Rates are similar to what you’ll pay for a 15-year fixed-rate mortgage, but you’ll pay off your loan faster.How 5/1 ARMs workWith a 5/1 ARM, a low rate is locked in for the first five years. Then your rate changes once per year for the remaining 25 years.A 5/1 ARM rate is higher than a 30-year or 15-year fixed rate right now. In the past, ARM rates have been lower, but that isn’t the case in recent weeks. This means ARMs cost more than they used to, and are therefore less beneficial.If you’re considering an ARM, then you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.It could be a good time to refinance or get a fixed-rate mortgageThink about refinancing soon if your finances are in a good place. Starting December 1, 2020, many borrowers will pay a fee of 0.05% for refinancing. Starting the process now could save you money. But if you have a low credit score or high debt-to-income ratio, it still might be better to wait. If your credit score is low or debt-to-income ratio is high, then you could end up paying significantly more in interest.Fixed mortgage rates are at historic lows right now, so you may want to consider getting a new mortgage if your finances are in a good place. But English doesn’t recommend applying for an adjustable-rate mortgage.”I can’t see one good reason why someone would choose to go with an ARM versus a 30-year fixed rate in today’s market,” English said. “Why take the risk when you can get a better rate in a 30-year loan?”If you want to apply for a new mortgage, then you don’t necessarily need to rush. Many economists believe rates will stay low for a long time. If you’re trying to land the lowest rate, consider taking some of the following steps before submitting an application:Increase your credit score by paying down high-interest debt and making payments on time. A score of at least 700 will help you out — but the higher, the better.Save more for a down payment. You don’t necessarily need a 20% down payment to get a good rate, but the more you save, the better your rate will likely be. If you don’t have much for a down payment right now, then it could be worth saving for a few more months, since rates are likely to stay low. If you don’t have money for a down payment, then you could apply for a USDA or VA loan, if you qualify.Lower your debt-to-income ratio. Your debt-to-income ratio is the amount you pay toward debts each month, divided by your gross monthly income. Lenders want to see a debt-to-income ratio of 36% or less. Consider paying down some debts, such as credit cards or a car loan, to get a lower ratio.If you feel comfortable with your financial situation, then now could be a good time to get a fixed-rate mortgage or refinance.
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