Today's best mortgage and refinance rates: Saturday, December 26, 2020

Mortgage and refinance rates haven't changed much since last Saturday, but they are trending downward overall. If you're ready to apply for a mortgage, you may want to choose a fixed-rate mortgage over an adjustable-rate mortgage.

Mat Ishbia, CEO of United Wholesale Mortgage, told Business Insider there isn't much of a reason to choose an ARM over a fixed rate right now.

ARM rates used to start lower than fixed rates, and there was always the chance your rate could go down later. But fixed rates are lower than adjustable rates these days, so you probably want to lock in a low rate while you can.

Mortgage rates for Saturday, December 26, 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 Saturday, and they have decreased across the board 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.

Refinance rates for Saturday, December 26, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.95%2.90%3.05%
15-year fixed2.42%2.42%2.48%
10-year fixed2.41%2.43%2.50%

Rates from Bankrate.

The 30-year and 10-year refinance rates have risen slightly since last Saturday, but 15-year rates remain unchanged. Refinance rates have decreased overall since this time last month.

How 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. 

A 30-year fixed mortgage charges a higher rate than a shorter-term mortgage. A 30-year mortgage used to charge a higher rate than an adjustable-rate mortgage, but 30-year terms have become the better deal recently.

Your monthly payments will be lower on a 30-year term than on a 15-year mortgage. You're spreading payments out over a longer period of time, so you'll pay less each month.

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

How 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 mortgage will be more affordable than a 30-year term over the years. The 15-year rates are lower, and you'll pay off the loan in half the amount of time.

However, your monthly payments will be higher on a 15-year term than a 30-year term. You're paying off the same loan principal in half the time, so you'll pay more each month.

How 10-year fixed-rate mortgages work

The 10-year fixed rates are comparable to 15-year fixed rates, but you'll pay off your mortgage in 10 years instead of 15 years.

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

How 5/1 ARMs work

An adjustable-rate mortgage, often referred to as an ARM, keeps your rate the same for the first few years, then changes it periodically. A 5/1 ARM locks in a rate for the first five years, then your rate fluctuates once per year.

ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. The 30-year fixed rates are comparable to or lower than ARM rates. 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 later with an ARM.

If you're considering an ARM, you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.

Tips for getting a low mortgage rate

It could be a good day to lock in a low fixed rate, but you might not need to rush.

Mortgage rates should stay low for a while, so you should 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 most important factor in boosting 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 tend to reward higher down payments with lower interest rates. 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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