Today's best mortgage and refinance rates: Monday, December 21, 2020

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Mortgage and refinance rates have decreased since last Monday, but not significantly. Rates are still gradually trending downward.

Today's low rates could make it a good time to get a mortgage, but you may want to go with a fixed-rate mortgage rather than an adjustable-rate mortgage.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider that typically there's an advantage to an adjustable-rate mortgage, in which the rate fluctuates after an initial period. That advantage is usually a lower rate for the fixed period.

However, he points out that ARMs don't currently follow that pattern. Fixed rates are currently better than adjustable rates, because lenders want to keep customers banking with them for as long as possible. Even though the 30-year fixed rate and 5/1 adjustable rate are about the same right now, you'd risk your 5/1 ARM rate increasing in five years, whereas you could lock in a low rate for decades with a 30-year term.

Today's mortgage interest rates: Monday, December 21, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.67%2.71%2.72%
15-year fixed2.21%2.26%2.28%
5/1 ARM2.79%2.79%2.85%

Rates from the Federal Reserve Bank of St. Louis.

Fixed mortgage rates have decreased by just a few basis points since last Monday, and adjustable rates have held steady. Mortgage rates are down since this time last month.

Overall, mortgage rates are at all-time lows. The trend downward becomes more evident 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 fixed2.67%3.13%3.73%
15-year fixed2.21%2.58%3.19%
5/1 ARM2.79%3.09%3.36%

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 will likely stay low.

Today's refinance interest rates: Monday, December 21, 2020

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.90%2.91%3.00%
15-year fixed2.40%2.58%2.54%
10-year fixed2.40%2.46%2.56%

Rates from Bankrate.

Refinance rates have decreased since last Monday and since November 21.

30-year fixed-rate mortgages

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

A 30-year fixed-rate mortgage charges a higher interest rate than a shorter-term fixed-rate mortgage. The 30-year fixed rates used to be higher than adjustable rates, but 30-year terms have become the better deal recently.

You'll pay less each month toward your mortgage than if you chose a shorter term. You're spreading payments out over a longer period of time, so your monthly payments will be lower.

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

15-year fixed-rate mortgages

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

A 15-year fixed-rate mortgage is less expensive than a 30-year term in the long run. You'll get a lower rate on a 15-year term, and you'll pay off the mortgage in a shorter amount of time.

Your monthly payments will be higher for a 15-year mortgage than for a 30-year mortgage, though. 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 usually comparable to 15-year rates, but you'll pay off your mortgage five years earlier.

A 10-year term isn't super common for an initial mortgage, but you may refinance into a 10-year mortgage.

5/1 adjustable-rate mortgages

While a fixed-rate mortgage locks in your interest rate for the entire life of your loan, an adjustable-rate mortgage, keeps your rate the same for the first few years, then changes it periodically. Your rate could go up or down, depending on the economy.

With a 5/1 ARM, your rate stays the same for the first five years, then changes 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 do you get the lowest mortgage rate possible?

Whether you want to get an initial mortgage or refinance, it could be a good day to get a fixed-rate mortgage. Fixed rates are at historic lows right now. 

But you probably don't have to rush. Rates should stay low well into 2021, so you have time to beef up your financial portfolio and land a better rate. Here are some ways to get a better mortgage rate:

  • Improve your credit score. Making all your payments on time is the most important factor in boosting your score, but paying down debts and letting your credit age can also help. Consider requesting a copy of your credit report to see your score and check for any errors that could be hurting you.
  • Save more for a down payment. You may be able to put down as little as 3% on a conventional mortgage, but most lenders will give you a lower rate with a higher down payment. Rates should stay low for a while, so 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 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 get a great mortgage 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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