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Mortgage and refinancing rates have been fluctuating since last week, although rates are still at significant lows.
If you are prepared to buy a home or refinance, you may prefer a fixed rate mortgage over an adjustable rate mortgage.
Darrin English, senior community development lending officer at Quontic Bank, said Insider ARMs were sometimes better bargains than fixed rate mortgages in the past.
Now, English said that you could guarantee a lower rate with a fixed rate mortgage for 15 or 30 years without risking a future ARM rate increase. You can consider locking at a low rate as long as possible.
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Mortgage refinancing rates have increased slightly since last week.
Refinancing rates are still at historic low levels. Low rates are often an indicator of an economy in crisis. Refinancing rates are likely to remain low as the United States continues to grapple with the economic consequences of the COVID-19 pandemic.
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Since last week, fixed mortgage rates have gone up, and all rates have increased since last month. However, rates on 7/1 ARM rates fell, decreasing 17 basis points. Rates remain at historical lows in general.
We are showing average rates across the country for conventional mortgages, which may be what you consider “normal mortgages”. Government-backed mortgages through the FHA, VA or USDA may offer lower rates, as long as you are eligible.
Fixed and adjustable mortgage rates have wavered since last Saturday – although they are still at marked lows. It can be an excellent day to catch a low mortgage rate.
At the same time, you shouldn’t worry too much about a rate hike anytime soon, as rates are likely to remain low in 2021, if not longer. There is no need to rush to get a mortgage or refinance. You have a chance to improve your financial situation and get a better rate.
If you want to get the lowest rate possible, take a look at these tips:
- Increase your credit score. You can start by making timely payments, paying off your debts, or allowing your credit to age. You will get a more favorable interest rate with a higher score, and many lenders will lower your rate with a score of at least 700.
- Save more for a payment. The smallest amount required for your payment will depend on the type of mortgage you are trying to obtain. The higher your payment, the more likely your creditor is to give you a better interest rate.
- Reduce the debt-to-income ratio. The DTI index is the amount you pay to cover debts each month, divided by your gross monthly income. Many lenders want a DTI rate of 36% or less. To improve your proportion, pay off debt or look for ways to increase your income.
- Choose one federally backed mortgage. You can consider a USDA loan (designed for low to moderate income borrowers who buy in a rural area), a VA loan (intended for military and veterans), or an FHA loan (not designated for any particular group). These loans usually come with lower interest rates than conventional mortgages. As a bonus, an initial payment is not required for USDA or VA loans.
If you’re financially ready, you can guarantee an excellent rate – but there’s no need to rush.
With a 15-year fixed mortgage, you will pay off the loan in 15 years and your interest rate will remain constant throughout the period.
You will pay higher monthly payments with a 15-year term than with a 30-year term because you are paying the same mortgage principal in half the time.
On the positive side, a 15-year fixed mortgage is cheaper than a 30-year fixed mortgage. You will take half the time to pay your mortgage and also get a lower interest rate.
If you take out a 30-year fixed mortgage, you will pay the mortgage in three decades at the same interest rate every time.
You will pay a higher amount of total interest over a 30-year term than over a 15-year term because you are paying a higher interest rate for an extended period.
However, you will pay less per month with a 30-year fixed mortgage than with a shorter term, because you are splitting your payments over more years.
An adjustable rate mortgage, commonly called an ARM, will block your rate for a certain period. Then, your rate will fluctuate periodically. ARM 7/1 keeps its rate the same for seven years, so its rate will change once a year.
Although ARM rates are quite low now, you may still want to obtain a fixed rate mortgage. 30-year fixed rates are equivalent to or less than ARM rates, so it may be the right opportunity to lock in a low rate with a fixed mortgage. That way, you won’t have to worry about raising fees in the future with an ARM.
If you are considering purchasing an ARM, ask your lender what your rates would be if you chose a fixed rate mortgage instead of an adjustable rate.
Although you can guarantee a low rate now, you must be financially prepared before doing this.
Ryan Wangman is a researcher at Personal Finance Insider, reporting on mortgages, refinancing, bank accounts and bank analysis. In his previous experience writing about personal finance, he wrote about credit scores, financial education and home ownership.
Laura Grace Tarpley is an associate editor for banks and mortgages for the Personal Finance Insider, covering mortgages, refinancing, bank accounts and bank analysis. She is also a Certified Personal Finance Educator (CEPF). In her four years of personal finance coverage, she has written extensively on ways to save, invest and borrow.