Today's best mortgage and refinance rates: Monday, December 28, 2020

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Mortgage and refinance rates haven't budged much since last Monday, but they've trended downward since this time last month.

If you want to buy a home soon, 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 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 fixed rates are lower than adjustable rates right now, so you probably want to lock in a low rate while you can.


The best mortgage rates on Monday, December 28, 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 Monday, and they have all decreased since last month.

Overall, mortgage rates are at historic lows. 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 typically signal a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates will probably stay low.

The best mortgage refinance rates on Monday, December 28, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.95%2.90%3.04%
15-year fixed2.41%2.40%2.66%
10-year fixed2.41%2.40%2.59%

Rates from Bankrate.

Refinance rates haven't changed much since last Monday, but they've decreased across the board since this time last month.

30-year fixed rates

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. 

The 30-year fixed rates are higher than 15-year fixed or 5/1 ARMs. Your monthly payments will be lower compared to the other types of loans, because your principal is spread out over a longer period of time.

But you'll pay more in interest because a) the rate is higher, and b) your interest is also spread out over a longer period of time.

15-year fixed rates

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 will be lower than a 30-year mortgage rate. 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 rates

A 10-year fixed-rate mortgage isn't very 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 five years earlier.

5/1 adjustable rates

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 could be a good day apply for a mortgage, but you probably won't miss out on low rates if you aren't quite ready to buy a home yet,

Mortgage and refinance rates should stay low well into 2021 — if not longer — so you'll likely 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 biggest factor in improving 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 typically offer you a better rate when you have a bigger down payment. Because rates should stay low for a while, 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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