Today's best mortgage and refinance rates: Friday, January 15, 2021

Mortgage rates have decreased overall since last Friday, and some refinance rates have also gone down. If you're ready to apply for a mortgage, you'll probably want a fixed-rate mortgage rather than an adjustable-rate mortgage.

Mat Ishbia, CEO of United Wholesale Mortgage, told Insider fixed-rate mortgages are usually better than ARMs 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 Ishbia said 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 for Friday, January 15, 2021

Mortgage typeAverage rate todayAverage rate last week
15-year fixed2.38%2.39%
30-year fixed3.17%3.30%
7/1 ARM4.19%4.35%
10/1 ARM4.25%4.38%

Rates from Ad Practitioners LLC.

Mortgage rates have dropped since last Friday, although 15-year fixed rates have only gone down by one basis point.

Remember that these are the national average rates for conventional mortgages, which are what you probably think of as "regular mortgages." If you get a government-backed mortgages through the FHA, VA, or USDA, rates could look a little different.

In general, mortgage rate are at all-time lows. Low rates are usually a sign of a struggling economy. Mortgage rates will probably stay low as the US continues to grapple with the COVID-19 pandemic.

The best refinance rates for Friday, January 15, 2021

Mortgage typeAverage rate todayAverage rate last week
15-year fixed2.64%2.72%
30-year fixed3.68%3.57%
7/1 ARM4.57%4.73%
10/1 ARM4.53%4.50%

Rates from Ad Practitioners LLC.

The 30-year fixed and 10/1 ARM refinance rates have decreased since last Friday. The 15-year fixed and 7/1 ARM refinance rates have increased a bit, but they're still low overall.

How 15-year fixed rates work

With a 15-year fixed term, you'll pay down your mortgage over 15 years and pay the same rate the whole time.

You'll pay a lower rate on a 15-year mortgage than on a 30-year mortgage. Between the lower rates and paying off the loan in a shorter amount of time, you'll pay less on a 15-year mortgage over the years.

Your monthly payments will be higher on a 15-year mortgage than on a 30-year mortgage, though. You're paying off the same principal amount in half the time, so you'll pay more each month.

How 30-year fixed rates work

A 30-year fixed-rate mortgage locks in your rate for 30 years.

A 30-year fixed mortgage charges a higher rate than a fixed-rate mortgage with a shorter term. For a long time, 30-year fixed rates were also higher than adjustable rates, but 30-year fixed mortgages are actually the better deal right now.

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

You'll make higher monthly payments on a 30-year term than on a shorter term, because you're spreading out payments over a longer period of time.

How adjustable rates work

With an adjustable-rate mortgage, your rate is locked in for the first few years. Then the rate changes periodically.

A 7/1 ARM keeps your rate the same for the first seven years, then changes it annually. A 10/1 ARM keeps your rate the same for the first decade, then alters it once per year. Some lenders offer ARMs that change your rate more or less often, like six months or five years.

ARM rates are low right now, but fixed-rate mortgages are still the better deal. Fixed rates are starting lower than ARM rates, and because rates are at all-time lows, you may want to lock in a good rate rather than risk an increase later.

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.

Ways to get the lowest mortgage rate possible

It may be a good time to get a mortgage, but if you aren't ready quite yet, you should have plenty of time to get a good interest rate. Mortgage rates should stay low well into 2021, so you don't necessarily have to rush to snag a low rate.

To get the lowest mortgage rate possible, consider working to improve your finances. Here are some tips for landing a good mortgage rate:

  • Boost your credit score. Making all your payments on time is the most important part of boosting your score, but you can also pay down debts and let 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 home loan you get, you may not even need a down payment to get a mortgage. But lenders typically offer better rates to people who have bigger down payments. Because rates should stay low for a while, you probably 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 lower your rate should be. To improve your ratio, pay down debts or consider opportunities to increase your income.

If your finances are in a good place, you could lock in a low mortgage rate today. 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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