Today's best mortgage and refinance rates: Tuesday, October 6, 2020

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Adjustable mortgage rates are the same as they were last Tuesday, and fixed rates have decreased. Refinance rates for 10-year, 15-year, and 30-year fixed mortgages have risen since last week and since last month, although the 30-year rate is still the only one above 3%.

This could be a good time to get a mortgage — but you probably want to go with a fixed-rate loan, not an adjustable-rate loan.

"Normally there's an advantage to a 5/1 ARM," Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider about an adjustable rate mortgage, in which the rate fluctuates after an initial period. "There's a reward, like a lower rate." That would make ARMs appealing if you plan to move before your intro rate period ends, because you could snag a low rate without risking it increasing later.

However, English points out that adjustable rates aren't starting lower than fixed rates anymore. The 30-year and 15-year fixed rates are currently offering comparable or even better rates than the 5/1 adjustable rate mortgage, because lenders want to keep customers banking with them for as long as possible.

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

The best mortgage rates Tuesday, October 6, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.88%2.90%2.93%
15-year fixed2.36%2.40%2.42%
5/1 ARM2.90%2.90%2.93%

Rates from the Federal Reserve Bank of St. Louis.

Fixed mortgage rates have decreased since last Tuesday, and 5/1 adjustable rates have remained steady.

Mortgage rates have gone down since September 6.

Overall, mortgage rates are low. The trend downward becomes more apparent when you look at rates from 6 months and a year ago:

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.88%3.33%3.65%
15-year fixed2.36%2.82%3.14%
5/1 ARM2.90%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 Tuesday, October 6, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed3.13%3.06%3.11%
15-year fixed2.62%2.55%2.53%
10-year fixed2.63%2.51%2.60%

Rates from Bankrate.

All three refinance rates have increased since last week and last month, although the 15-year fixed refinance rate is currently the lowest by a mere percentage point. 

How do 30-year fixed rates work?

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.

How do 15-year fixed rates work?

A 15-year fixed-rate mortgage charges a lower interest rate than a 30-year mortgage. You'll pay less over time because a) the rate is lower, and b) you're paying off your mortgage in half the time.

The down side is the higher monthly payments. Because you're squeezing the same principal into less time, you'll pay more each month than you would with a 30-year loan.

How do 10-year fixed rates work?

It isn't very common to get a 10-year fixed rate on an initial mortgage. But you might refinance into a 10-year mortgage after you've paid down some of your loan.

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

How do 5/1 ARMs work?

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.

Is it a good day to get a new mortgage or refinance your home?

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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