Today's best mortgage and refinance rates: Friday, October 23, 2020

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Mortgage rates have decreased since last Friday. Some refinance rates have increased, while others have remained steady.

Overall, mortgage rates are low. It may be a good time to get a new loan if your finances are in a good place. You'll probably get the best deal on a fixed-rate mortgage, not an adjustable-rate mortgage.

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 be lower than fixed rates during the intro rate periods.

English said adjustable-rate mortgages have become less beneficial for borrowers, though. ARM rates are starting higher than fixed-rate mortgages, and you'd risk your rate increasing down the road. It's safer to lock in a low rate for decades, rather than face higher rates later.

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

The best mortgage rates Friday, October 23, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.80%2.81%2.87%
15-year fixed2.33%2.35%2.35%
5/1 ARM2.87%2.90%2.96%

Rates from the Federal Reserve Bank of St. Louis.

Mortgage rates have gone down since last Friday, and since this time last month.

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 fixed2.80%3.33%3.69%
15-year fixed2.33%2.86%3.15%
5/1 ARM2.87%3.28%3.35%

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 Friday, October 23, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed3.19%3.13%2.97%
15-year fixed2.63%2.59%2.51%
10-year fixed2.59%2.59%2.45%

Rates from Bankrate.

The 30-year and 15-year fixed refinance rates have increased since last Friday, and 10-year fixed rates have held steady. Refinance rates have increased overall since last month.

How 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 15-year fixed rates work

A 15-year fixed-rate mortgage is more affordable than a 30-year mortgage in the long run. The 15-year rates are lower, and you'll pay off the loan in half the time.

Short-term costs will be higher, though. You'll pay more per month than you would on a 30-year loan, because you're fitting the same loan principal into a shorter amount of time.

How 10-year fixed rates work

A 10-year term isn't very common for an initial mortgage, but you may refinance into a 10-year fixed mortgage.

The 10-year rates are similar to 15-year rates, but you'll pay off the mortgage in a shorter amount of time.

How 5/1 adjustable rates 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 could 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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