Today's mortgage and refinance rates in Alabama
Buying a home in Alabama
According to Zillow, the typical home value in Alabama is below the national typical home value of $259,906 in the US. The typical home value in Alabama is $155,782, and Zillow expects the value to increase to $166,000 by September 2021.
First-time homebuyer programs in Alabama
The Alabama Housing Finance Administration offers financial assistance for novice homebuyers. You can combine all three of these assistance programs. Get your mortgage through an AHFA-participating lender and apply for any of the following programs:
- Step Up: Receive 3% of your mortgage amount as a down payment assistance loan for a conventional mortgage, or 3.5% for an FHA mortgage.
- Affordable Income Subsidy Grant: You can get additional financial assistance for closing costs if you meet income requirements, and you don't need to pay back the money.
- Mortgage Credit Certificates: Get a tax credit of 50% of the interest you pay on your mortgage, up to $2,000 per year.
Historic mortgage rates for Alabama
By looking at the average mortgage rates in Alabama since 2010, you can see trends for 30-year fixed mortgages, 15-year fixed mortgages, and 5/1 adjustable mortgages:
Seeing how today's rates compare to historic Alabama mortgage rates may help you decide whether you'd be getting a good deal by getting a mortgage or refinancing now.
30-year fixed mortgage rates
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 mortgage, because a) the rate is higher, and b) you'll be paying interest for longer.
15-year fixed mortgage rates
You'll pay less on a 15-year mortgage than on a 30-year loan, for two reasons: 15-year fixed rates are lower, and you'll pay off the mortgage in half the time.
Your monthly payments will be higher than with a 30-year mortgage, though. You're squeezing the same loan principal into a shorter amount of time, so you'll pay more each month.
Adjustable mortgage rates
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. 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 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.
Refinancing your mortgage in Alabama
Rates are at historic lows right now, so it could be worth it to switch your current mortgage for one with a lower rate — especially if the new rate would be significantly lower.
You don't necessarily need to refinance with the same lender you used for your initial mortgage. A different company may offer you a better deal this time around. Shop around for a lender who will offer the lowest rate based on your credit score and debt-to-income ratio, and the one who charges relatively low fees.
How to get a low interest rate
Here are some tips for landing a good interest rate on your mortgage:
- Save 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. Rates should stay low for a while, so you probably have time to save more.
- Increase your credit score. Many lenders require a minimum credit score of 620 to receive a mortgage. But the higher your score, the better your rate will be. To improve your credit score, be sure to pay all your bills on time. You can also pay down debts or let your credit age.
- 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.
- Choose a USDA or VA loan. If you're eligible, you might consider a USDA loan (for low-to-moderate income borrowers buying in a rural area) or a VA loan (for military members and veterans). These mortgages typically come with lower interest rates than conventional or FHA loans. As an added bonus, you won't need a down payment.
Improving your financial situation and choosing the right type of mortgage for your needs can help you get the best interest rate possible.
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