Today's best mortgage and refinance rates: Friday, October 2, 2020

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Since last Friday, fixed mortgage rates have decreased, adjustable rates have stayed the same, and refinance rates have increased. Mortgage rates have gone down since this time last month. The 30-year and 15-year refinance rates have increased since the beginning of September, and 10-year fixed rates have remained steady.

It's a better deal to get a fixed-rate mortgage than an adjustable-rate mortgage right now.

A fixed-rate mortgage locks in your rate for the entire life of the loan. An adjustable-rate mortgage keeps your rate the same for the first few years, then adjusts it once per year. Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that typically there's an advantage to an adjustable-rate mortgage, like a lower interest rate.

However, he points out that ARMs don't currently follow that pattern. Fixed rates are better than adjustable rates right now, because lenders want to keep customers banking with them for as long as possible. The 30-year fixed rate is lower than the 5/1 ARM rate this week. And 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 order, this could be a good time to refinance or get a fixed-rate mortgage.

The best mortgage rates Friday, October 2, 2020

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 2.88% 2.90% 2.91%
15-year fixed 2.36% 2.40% 2.46%
5/1 ARM 2.90% 2.90% 2.91%

Rates from the Federal Reserve Bank of St. Louis.

The 30-year and 15-year fixed rates have decreased since last Friday, and 5/1 adjustable rates have remained steady. Mortgage rates have decreased since September 2.

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% 3.64%
15-year fixed 2.36% 2.82% 3.16%
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 Friday, October 2, 2020

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 3.08% 2.92% 3.07%
15-year fixed 2.61% 2.51% 2.57%
10-year fixed 2.61% 2.44% 2.61%

Rates from Bankrate.

Refinance rates have increased since last week. The 30-year and 15-year rates have gone up since this time last month, while the 10-year rate has balanced out.

30-year fixed-rate mortgages

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-rate mortgages

You'll pay a lower interest rate on a 15-year fixed-rate mortgage than on a 30-year mortgage. You'll save money in the long run because the rate is lower, and you'll be making payments for half the amount of the time.

Your monthly payments will be higher with a 15-year mortgage, though, because you're paying off the principal in 15 years instead of 30 years.

10-year fixed-rate mortgages

A 10-year fixed-rate term isn't super common for an initial mortgage. But you could refinance into a 10-year fixed-rate loan after you've paid down some of your mortgage.

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

5/1 adjustable-rate mortgages

An adjustable-rate mortgage locks in your rate for a few years, then changes it periodically. For example, a 5/1 ARM keeps your rate the same for the first five years, and your rate will increase or decrease once per year.

Mortgage rates are at historic lows right now. It might 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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