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Today's best mortgage and refinance rates: Wednesday, October 7, 2020

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Mortgage and refinance rates are low overall today. Fixed mortgage rates have decreased by a few basis points since last Wednesday, and adjustable rates have remained steady. The 30-year and 10-year refinance rates have gone up since this time last week, and the 15-year refinance rates have stayed the same.

Although adjustable rates are significantly lower than they were 6 months or a year ago, you still might want to choose a fixed-rate mortgage.

"Normally there's an advantage to a 5/1 ARM," Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider about an adjustable rate mortgage, in which the rate fluctuates after an initial period. "There's a reward, like a lower rate." That would make ARMs appealing if you plan to move before your intro rate period ends, because you could snag a low rate without risking it increasing later.

However, English points out that adjustable rates aren't starting lower than fixed rates anymore. The 30-year and 15-year fixed rates are currently offering comparable or even better rates than the 5/1 adjustable rate mortgage, because lenders want to keep customers banking with them for as long as possible.

It could be a good time to get a fixed-rate mortgage or to refinance if your finances are in a good place.

The best mortgage rates Wednesday, October 7, 2020

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 2.88% 2.90% 2.93%
15-year fixed 2.36% 2.40% 2.42%
5/1 ARM 2.90% 2.90% 2.93%

Rates from the Federal Reserve Bank of St. Louis.

The 30-year and 15-year fixed mortgage rates have decreased since last Wednesday, and 5/1 adjustable rates have remained the same.

Mortgage rates have decreased since this time last month.

Overall, mortgage rates are low. The trend downward becomes more apparent when you look at rates from 6 months and a year ago:

Mortgage type Average rate today Average rate 6 months ago Average rate 1 year ago
30-year fixed 2.88% 3.33% 3.65%
15-year fixed 2.36% 2.82% 3.14%
5/1 ARM 2.90% 3.40% 3.38%

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 Wednesday, October 7, 2020

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 3.14% 3.06% 3.11%
15-year fixed 2.60% 2.62% 2.53%
10-year fixed 2.64% 2.62% 2.60%

Rates from Bankrate.

The 30-year and 10-year refinance rates have increased since last Wednesday, although the 10-year rate has only gone up by two basis points. The refinance rate for a 15-year mortgage has dropped slightly since last week. Rates are up since this time last month.

30-year fixed mortgage rates

You'll pay a higher rate on a 30-year fixed mortgage than on a shorter term, like a 15-year fixed loan. In the past, 30-year fixed mortgages have charged higher rates than adjustable-rate mortgage. But right now, 30-year mortgages are more affordable than adjustable mortgages.

Your monthly payments will be relatively low, because you're spreading payments out over a longer period of time than with a shorter-term loan.

The trade-off is that you'll pay more in interest than you would with a shorter-term mortgage, because a) the rate is higher, and b) the interest is also spread out over a longer amount of time.

15-year fixed mortgage rates

A 15-year fixed-rate mortgage charges a lower interest rate than a 30-year mortgage. You'll pay less over time because a) the rate is lower, and b) you're paying off your mortgage in half the time.

The down side is the higher monthly payments. Because you're squeezing the same principal into less time, you'll pay more each month than you would with a 30-year loan.

10-year fixed mortgage rates

It isn't very common to get a 10-year fixed rate on an initial mortgage. But you might refinance into a 10-year mortgage after you've paid down some of your loan.

The 10-year fixed rates are comparable to 15-year fixed rates, but you'll pay off your loan sooner.

5/1 adjustable mortgage rates

While a fixed-rate mortgage locks in your rate for the entire loan term, an adjustable-rate mortgage locks in the rate for the first few years, then changes it periodically. With a 5/1 ARM, your rate stays the same for the first five years, then increases or decreases once per year.

ARM rates are low right now, but you still might want to go with a fixed-rate mortgage instead. 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.

Adjustable rates used to be lower than fixed rates during the introductory rate period, but this is no longer the case. This means ARMs are less beneficial than they used to be.

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 get a fixed-rate mortgage or refinance

This could be a good time to refinance if you have a strong financial profile. Starting December 1, 2020, most borrowers will pay a 0.05% fee for refinancing. If you lock in your rate before December 1, then you can avoid paying this closing fee.

But if your credit score and debt-to-income ratio need some improvement, it still might be better to hold off on refinancing. A low credit score or high DTI could result in a higher interest rate, so it might not be worth rushing to beat the December 1 deadline.

It could also be a good time to get a fixed-rate mortgage, because fixed mortgage rates are at historic lows right now. 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. Rates will likely stay low well into 2021, if not longer. 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 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. Some types of mortgages require a 10% down payment, while USDA and VA loans don't make you place a down payment at all. 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 debt-to-income ratio 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 lend you a better rate. Consider paying down some debts, such as credit cards or personal loans, to get a lower ratio.

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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