Today's best mortgage and refinance rates: Wednesday, December 30, 2020

Mortgage and refinance rates have decreased slightly since last Wednesday, but the rates haven't changed drastically. 

Rates are at all-time lows in general, though, so it could be a good time to buy or refinance. If you want to get a mortgage soon, you may prefer 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 these days.

ARM rates used to start lower than fixed rates for the first few years, and there was a chance your rate could decrease later. But Ishbia said fixed rates are lower than adjustable rates right now, so you probably want to lock in a low rate while you can.

Today's mortgage rates: Wednesday, December 30, 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.

Mortgage rates haven't changed much since last Wednesday, but they have decreased since the end of November.

Mortgage rates are at historic lows right now. The downward trend becomes more obvious when you look at rates from six 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 usually a sign of a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates will probably stay low.

Today's refinance rates: Wednesday, December 30, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.93%2.93%3.08%
15-year fixed2.40%2.40%2.52%
10-year fixed2.42%2.42%2.53%

Rates from Bankrate.

All three mortgage refinance rates have held steady since last Wednesday, and have gone down a bit more significantly since this time last month.

How do 30-year fixed rates 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. 

You'll pay a higher interest rate on a 30-year fixed mortgage than on a shorter-term fixed-rate mortgage. But you may pay a lower rate on a 30-year fixed mortgage than on an adjustable-rate mortgage.

Monthly payments are lower for 30-year mortgages than for shorter terms, because you're spreading payments out over a longer period of time.

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

How do 15-year fixed rates work?

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

In the long run, a 15-year fixed-rate mortgage is more affordable than a 30-year mortgage. The 15-year term comes with a lower interest rate, and you'll pay off your mortgage in half the time.

Your monthly payments will be higher on a 15-year term than on a longer term, though. You're paying off the same loan principal in a shorter amount of time, so you'll pay more each month.

How do 10-year fixed rates 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 adjustable rates work?

With an adjustable-rate loan, your rate stays the same for the first few years, then changes periodically. Your rate is locked in for the first five years on a 5/1 ARM, then your rate increases or decreases 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.

How to get a low mortgage rate

It may be a good time to get a mortgage, but if you aren't ready quite yet, you should have plenty of time to get a good interest rate. Mortgage rates should stay low well into 2021, so you don't necessarily have to rush to snag a low rate.

To get the lowest mortgage rate possible, consider working to improve your finances. Here are some tips for landing a good mortgage rate:

  • Boost your credit score. Making all your payments on time is the most important part of boosting your score, but you can also pay down debts and let 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 home loan you get, you may not even need a down payment to get a mortgage. But lenders typically offer better rates to people who have bigger down payments. Because rates should stay low for a while, you probably have time to save more.
  • Lower 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 lower your rate should be. To improve your ratio, pay down debts or consider opportunities to increase your income.

If your finances are in a good place, you could lock in a low mortgage rate today. 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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