Today's best mortgage and refinance rates: Wednesday, January 6, 2021

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Mortgage and refinance rates haven't changed much since last Wednesday, but they're still trending downward overall. Right now, you'll probably want a fixed-rate mortgage rather than an adjustable-rate mortgage.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that typically there's an advantage to an adjustable-rate mortgage, in which the rate fluctuates after an initial period. That advantage is usually a lower rate for the fixed period.

However, he points out that ARMs don't currently follow that pattern. Fixed rates are currently better than adjustable rates, because lenders want to keep customers banking with them for as long as possible. Even though the 30-year fixed rate and 5/1 adjustable rate are about the same right now, you'd risk your 5/1 ARM rate increasing in five years, whereas you could lock in a low rate for decades with a 30-year term.

If your finances are in a good place, consider refinancing or getting a fixed-rate mortgage soon.

Mortgage rates on Wednesday, January 6, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.67%2.66%2.71%
15-year fixed2.17%2.19%2.26%
5/1 ARM2.71%2.79%2.86%

Rates from the Federal Reserve Bank of St. Louis.

Fixed mortgage rates have shifted by one or two basis points since last Wednesday, and adjustable rates are down by eight basis points. Mortgage rates have dropped a bit more since this time last month.

In general, mortgage rates are at historic lows right now. The downward trend becomes more evident 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 fixed2.67%3.07%3.72%
15-year fixed2.17%2.56%3.16%
5/1 ARM2.71%3.00%3.46%

Rates from the Federal Reserve Bank of St. Louis.

Lower rates are typically a sign of a struggling economy. Rates will probably stay low as the US continues to deal with the coronavirus pandemic.

Refinance rates on Wednesday, January 6, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.89%2.93%2.99%
15-year fixed2.33%2.40%2.44%
10-year fixed2.36%2.42%2.50%

Rates from Bankrate.

Refinance rates have decreased since last Wednesday, and since this time last month.

30-year fixed-rate mortgages

With a 30-year fixed-rate mortgage, you pay off your loan over 30 years, and your rate remains the same the entire time.

A 30-year fixed mortgage comes with a higher interest rate than a shorter-term fixed-rate mortgage. The 30-year fixed rates used to be higher than adjustable rates, but 30-year terms have become the better deal recently.

Your monthly payments on a 30-year term will be lower than on a shorter-term 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 in the long term 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.

15-year fixed-rate mortgages

With a 15-year fixed term, you'll pay down your mortgage over 15 years, and your rate is locked in for the entire time.

A 15-year fixed rate is lower than what you'll pay for a 30-year mortgage. Monthly payments will likely be higher, because you're paying off the principal in half the time.

You'll save money in the long run, though, since you won't be paying for as long and the rate is lower.

10-year fixed-rate mortgages

You could get a 10-year term for an initial mortgage, but it isn't very common. You might refinance into a 10-year term, though.

The 10-year mortgage rates are similar to 15-year rates, but you'll pay off your mortgage five years earlier.

5/1 adjustable-rate mortgages

With an adjustable-rate mortgage, your interest rate stays the same for the first few years, then changes periodically. For instance, a 5/1 ARM locks in your rate for the first five years, then your rate will increase or decrease once per year.

ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. You could lock in a super low rate for the entire life of your loan rather than risk your rate increasing down the road.

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 right now, fixed rates are 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.

How to get a better mortgage rate

It could be a good day to get a mortgage or refinance, because rates are at all-time lows. However, you don't necessarily have to rush.

Mortgage rates will likely stay low for months, if not years. You probably have time to boost your finances, which will help you get a better rate. Here are some ways to improve your financial profile:

  • Increase your credit score by paying down high-interest debt and making payments on time. Consider requesting a credit report to check for any errors that could be hurting you.
  • Save more for a down payment. The minimum down payment required to buy a home depends on which type of mortgage you want. But saving more than the minimum can help you land a better rate.
  • Improve your debt-to-income ratio. A debt-to-income ratio is the amount you pay toward debts each month, divided by your gross monthly income. Lenders usually want to see a debt-to-income ratio of 36% or less, but it depends on which type of mortgage you get. Consider paying down some debts, such as credit cards or a car loan, to get a lower ratio.

If your finances are in a good place, you could lock in a good 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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