Today's best mortgage and refinance rates: Sunday, December 27, 2020

Mortgage and refinance rates have hardly changed since last Sunday, and overall, they're at historic lows. If you're ready to get a mortgage, you may want to choose a fixed-rate mortgage over an adjustable-rate mortgage.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider ARMs aren't nearly as beneficial as they used to be.

"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 have a strong financial profile, you may be ready to lock in a low mortgage rate today.

Today's mortgage rates: Sunday, December 27, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.66%2.67%2.72%
15-year fixed2.19%2.21%2.28%
5/1 ARM2.79%2.79%3.16%

Rates from the Federal Reserve Bank of St. Louis.

Some mortgage rates have decreased slightly since last Sunday, and they've all gone down since last month.

Mortgage rates are at all-time lows overall. The downward trend becomes more obvious when you look at rates from 6 months or a year ago:

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.66%3.13%3.74%
15-year fixed2.19%2.59%3.19%
5/1 ARM2.79%3.08%3.45%

Rates from the Federal Reserve Bank of St. Louis.

Lower rates are typically a sign of a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates will probably stay low.

Today's mortgage refinance rates: Sunday, December 27, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.95%2.90%3.09%
15-year fixed2.40%2.42%2.52%
10-year fixed2.41%2.43%2.54%

Rates from Bankrate, last updated on Friday.

The 15-year and 10-year mortgage refinance rates have gone down a little since last Sunday, but 30-year refinance rates have risen. Refinance rates have dropped since this time last month.

How do 30-year fixed-rate mortgages work?

With a 30-year fixed mortgage, you'll pay off your loan over 30 years, and your rate stays locked in for the entire time. 

The 30-year fixed-rate mortgages charge higher interest rates than fixed-rate mortgages with shorter terms. In the past, they've also had higher rates than adjustable-rate mortgages — but right now, fixed rates are better deals than adjustable rates.

Your monthly payments will be lower on a 30-year mortgage than on a shorter-term loan, because the principal is spread out over a longer period of time.

The trade-off is that you'll pay more in interest than you would with a 15-year or 10-year loan, because a) the rate is higher, and b) the interest is also spread out over a longer period of time.

How do 15-year fixed-rate mortgages work?

With a 15-year fixed mortgage, you'll pay down your loan over 15 years and pay the same rate the whole time.

A 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, since you won't be paying for as long and the rate is lower.

How do 10-year fixed-rate mortgages work?

A 10-year fixed-rate mortgage isn't super 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 do 5/1 ARMs work?

With an adjustable-rate mortgage, your interest rate stays the same for the first few years, then changes periodically. For instance, a 5/1 ARM locks in your rate for the first five years, then your rate will increase or decrease once per year.

ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. You could lock in a super low rate for the entire life of your loan rather than risk your rate increasing down the road.

You used to be able to get a lower rate during the intro rate period with an ARM than with a fixed-rate mortgage. But right now, fixed rates are lower.

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.

How to get the lowest mortgage rate possible

It could be a good day to lock in a low fixed rate, but you probably won't miss out on low rates if you aren't quite ready yet.

Mortgage rates should stay low well into 2021, so you'll probably have time to improve your finances if necessary. Lenders usually offer better rates to people with stronger financial profiles.

Here are some tips for snagging a low mortgage rate:

  • Increase your credit score. Making all your payments on time is the biggest factor in improving your score, but you should also work on paying down debts and letting your credit age. You may want to request a copy of your credit report to review your report for any errors.
  • Save more for a down payment. Depending on which type of mortgage you get, you may not even need a down payment to get a loan. But lenders typically offer you a better rate when you have a bigger down payment. Because rates should stay low for months (if not years), you probably have time to save more.
  • Improve your debt-to-income ratio. Your DTI ratio is the amount you pay toward debts each month, divided by your gross monthly income. Many lenders want to see a DTI ratio of 36% or less, but the lower your ratio, the better your rate will be. To lower your ratio, pay down debts or consider opportunities to increase your income.

If your finances are in a good place, you could land a low mortgage rate right now. But if not, you have plenty of time to make improvements to get a better rate.

Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.

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