Today's best mortgage and refinance rates: Sunday, January 3, 2021

Although mortgage rates haven't changed much since last Sunday, they're remarkably lower than they were a year ago. This could be a good time to lock in a low rate.

Whether you want to buy a home or refinance, you'll probably want to go with a fixed-rate mortgage rather than 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.

Mortgage rates on Sunday, January 3, 2021

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 2.67% 2.66% 2.71%
15-year fixed 2.17% 2.19% 2.26%
5/1 ARM 2.71% 2.79% 2.86%

Rates from the Federal Reserve Bank of St. Louis.

The 30-year fixed mortgage rates have gone up by one basis point since last Sunday. The 15-year fixed and 5/1 adjustable rates have gone down. Mortgage rates have decreased since this time last month.

Mortgage rates are at historic lows right now. The trend downward becomes more apparent when you look at rates from six months ago or from last January.

Mortgage type Average rate today Average rate 6 months ago Average rate 1 year ago
30-year fixed 2.67% 3.07% 3.72%
15-year fixed 2.17% 2.56% 3.16%
5/1 ARM 2.71% 3.00% 3.46%

Rates from the Federal Reserve Bank of St. Louis.

Lower rates are typically a sign of a struggling economy. As the US economy continues to grapple with the coronavirus pandemic, rates should remain low.

Refinance rates on Sunday, January 3, 2021

Mortgage type Average rate today Average rate last week Average rate last month
30-year fixed 2.91% 2.95% 2.98%
15-year fixed 2.38% 2.40% 2.44%
10-year fixed 2.38% 2.41% 2.50%

Rates from Bankrate, last updated Friday.

The 30-year refinance rates have decreased since last Sunday, 15-year rates have stayed the same, and 10-year rates have increased. Refinance rates have gone down since this time last month.

30-year fixed-rate mortgages

With a 30-year fixed mortgage, you'll pay off your loan over 30 years, and your rate stays the same the entire time.

A 30-year fixed-rate mortgage charges a higher interest rate than a 15-year or 10-year fixed-rate mortgages. For a long time, you'd also pay a higher rate on a 30-year fixed mortgage than on a 5/1 ARM. But right now, 30-year fixed rates are the better deal.

You'll pay more in interest in the long term with a 30-year term than you would for a 15-year or 10-year term, because a) the rate is higher, and b) you'll be paying interest for longer.

The good news is that you'll pay less each month on a 30-year term than on a shorter term, so you're spreading your payments out over a longer period of time.

15-year fixed-rate mortgages

With a 15-year fixed mortgage, you'll pay down your loan over 15 years and pay the same rate for the entire life of the loan.

A 15-year fixed-rate mortgage is less expensive than a 30-year term in the long run. The 15-year rates are lower, and you'll pay off the loan in half the amount of time.

However, your monthly payments will be higher on a 15-year term than a 30-year term. You're paying off the same loan principal in half the time, so you'll pay more every month.

10-year fixed-rate mortgages

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

It isn't very common to get a 10-year term on an initial mortgage, but you might refinance into a 10-year term.

5/1 adjustable-rate mortgages

An adjustable-rate mortgage keeps your rate stays the same for the first few years, then changes it periodically. A 5/1 ARM locks in your rate for the first five years. Then your rate goes up or down once per year for the remaining 25 years.

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 do you get a low mortgage rate?

Fixed mortgage rates are at historic lows right now, so it could be a good day to lock in a low rate. 

You don't necessarily need to rush, though. Mortgage rates will probably stay low for months (if not years), so you have time to improve your financial situation — which will land you a better rate. Here are some ways to get a lower mortgage rate:

  • Increase your credit score. Paying all your bills on time is the most crucial factor in improving your score, but there are other ways to boost a score, as well.
  • Save more for a down payment. Lenders tend to reward bigger down payments with lower mortgage rates. Because rates should stay low for a while, you likely have time to save more.
  • Lower 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 strong, you could get a low mortgage rate 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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