Today's best mortgage and refinance rates: Wednesday, October 21, 2020

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Mortgage rates have fluctuated since last Wednesday — fixed rates are down, while adjustable rates are up. Refinance rates for 10, 15, and 30-year fixed mortgages have increased since this time last week.

Rates are low overall, so it could be a good time to get a mortgage or refinance your home. You probably want to get a fixed-rate mortgage, though, not an adjustable-rate loan.

Adjustable-rate mortgages change your rate after an initial period. Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider these mortgages used to work in favor of some borrowers, because adjustable rates would start lower than fixed rates.

English said adjustable-rate mortgages are becoming less advantageous for borrowers. ARM rates are starting higher than fixed-rate mortgages, and you'd risk your rate increasing down the road. It's probably better to lock in a historically low interest rate now with a fixed-rate loan.

If your finances are stable, it could be a good time to get a fixed-rate mortgage or refinance.

The best mortgage rates Wednesday, October 21, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.81%2.87%2.87%
15-year fixed2.35%2.37%2.35%
5/1 ARM2.90%2.89%2.96%

Rates from the Federal Reserve Bank of St. Louis.

The 30-year and 15-year fixed rates have decreased since last Wednesday, and 5/1 adjustable rates have increased by one basis point. The 30-year fixed rates and 5/1 adjustable rates have gone down since this time last month, while 15-year fixed rates have held steady.

Mortgage rates are low in general right now. The trend downward becomes more obvious when you look at rates from 6 months and a year ago:

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.81%3.31%3.69%
15-year fixed2.35%2.80%3.15%
5/1 ARM2.90%3.34%3.35%

Rates from the Federal Reserve Bank of St. Louis.

Mortgage rates were well over 3% this time last year. Now, average rates have been below 3% for weeks.

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 Wednesday, October 21, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed3.20%3.13%2.97%
15-year fixed2.64%2.60%2.49%
10-year fixed2.66%2.63%2.45%

Rates from Bankrate.

Refinance rates have increased by a few basis points since last Wednesday — although the 30-year fixed mortgage rates have increased the most — and they've gone up since this time last month.

How do 30-year fixed rates work?

A 30-year fixed mortgage comes with a higher interest rate than fixed-rate loans with shorter terms. For a long time, 30-year fixed rates were higher than adjustable rates. But right now, 30-year fixed rates the better deal.

Your monthly payments will be lower for a 30-year term than for a shorter term, because you're spreading payments out over a longer period of time.

You'll pay more in interest with a 30-year term than you would for a 15-year or 10-year mortgage, because a) the rate is higher, and b) you'll be paying interest for longer.

How do 15-year fixed rates work?

You'll pay less on a 15-year mortgage than on a 30-year loan, for two reasons: 15-year fixed rates are lower, and you'll pay off the mortgage in half the time.

Your monthly payments will be higher than with a 30-year mortgage, though. You're squeezing the same loan principal into a shorter amount of time, so you'll pay more each month.

How do 10-year fixed rates work?

Some lenders offer 10-year fixed-rate terms for initial mortgages, but it's more common to get a 10-year term on a refinanced loan.

You'll pay a similar rate on a 10-year fixed-rate loan as you would on a 15-year mortgage, but you'll pay off the loan sooner.

How do 5/1 ARMs work?

An adjustable-rate mortgage keeps your rate the same for the first few years, then changes it periodically. For example, a 5/1 ARM locks in your rate for the first five years, then your rate fluctuates once per year.

ARM rates are at historic lows right now, but a fixed-rate mortgage is still the better deal. It could be in your best interest to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate increasing with an ARM.

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 that isn't the case right now — fixed mortgage rates are generally 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.

It may be a good time to get a fixed-rate mortgage or refinance

Consider refinancing soon if your finances are in a good place. Starting December 1, most borrowers will pay a 0.5% fee for refinancing. By locking in a rate before December 1, you can avoid paying this closing fee.

But if your finances need improvement, you still might want to wait to refinance. A low credit score or a high debt-to-income ratio will result in a higher interest rate, which could cost you more than the 0.5% fee in the long run.

Thinking about getting a new mortgage? It could be a good time to get a fixed-rate mortgage, because fixed rates are at historic lows. 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?"

You don't necessarily need to rush to apply for a new mortgage. Rates will likely stay low well into 2021, if not longer. If you want to land the lowest rate, consider taking some of the following steps before submitting an application:

  • Increase your credit score by making payments on time, paying down debt, and letting your credit age. A score of at least 700 will help you out — but the higher, the better.
  • Save more for a down payment. With a conventional loan, you may be able to put down as little as 3%. But the higher your down payment, the lower your rate will likely be. Because rates should stay low for a while, you probably have time to save more.
  • Lower your debt-to-income ratio. Your DTI is the amount you pay toward debts each month, divided by your gross monthly income. Most lenders want to see a DTI of 36% or less, but an even lower DTI can result in a better rate. To improve your DTI, pay down debts or figure out whether you can earn more money.

If you feel comfortable with your financial situation, now could be a good time to get a fixed-rate mortgage or refinance.

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