Today's best mortgage and refinance rates: Friday, January 8, 2021

Mortgage and refinance rates have only shifted by a couple basis points since last Friday, so they're still at historic lows.

With such low rates, you may want to get a fixed-rate mortgage, not an adjustable-rate mortgage. A fixed-rate mortgage will lock in a great rate for the entire term of your mortgage.

Darrin English, Senior Community Development Loan Officer at Quontic Bank, told Business Insider ARMs aren't nearly as beneficial for borrowers as they used to be. You used to be able to get a lower rate on an ARM for the first few years than you could get with a fixed rate, but that's not the case anymore.

Today's mortgage rates: Friday, January 8, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.65%2.67%2.71%
15-year fixed2.16%2.17%2.26%
5/1 ARM2.75%2.71%2.86%

Rates from the Federal Reserve Bank of St. Louis.

Mortgage rates have shifted a bit since last Friday, but not significantly. Rates have decreased since this time last month.

Mortgage rates are at record lows overall. The downward trend becomes more evident when you look at rates from six months or a year ago.

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.65%3.07%3.72%
15-year fixed2.16%2.56%3.16%
5/1 ARM2.75%3.00%3.46%

Rates from the Federal Reserve Bank of St. Louis.

Low rates usually signal a struggling economy. Rates will probably stay low as the US continues to deal with the coronavirus pandemic.

Today's refinance rates: Friday, January 8, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.90%2.91%2.95%
15-year fixed2.33%2.38%2.44%
10-year fixed2.36%2.38%2.50%

Rates from Bankrate.

Refinance rates have stayed low, but they haven't decreased drastically since this time last week or last month.

How 30-year fixed rates work

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

A 30-year fixed mortgage comes with 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.

Your monthly payments on a 30-year term will be lower than on a shorter-term mortgage. You're spreading payments out over a longer period of time, so you'll pay less each month.

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

How 15-year fixed rates work

With a 15-year fixed term, you'll pay down your mortgage over 15 years, and your rate is locked in for the entire time.

In the long run, a 15-year fixed-rate mortgage is more affordable than a 30-year mortgage. The 15-year term comes with a lower interest rate, and you'll pay off your mortgage in half the time.

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

How 10-year fixed rates work

Many lenders offer similar rates on 10-year mortgages and 15-year mortgages, but you'll pay off your mortgage five years earlier.

You might refinance into a 10-year mortgage, but a 10-year term isn't super common for an initial mortgage.

How 5/1 adjustable rates 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.

Tips for getting the best mortgage rate possible

It could be a good day to lock in a rate, but don't stress if you aren't ready just yet. Mortgage rates should stay low for the foreseeable future, so you'll probably have time to take advantage of low rates.

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

  • Improve your credit score by paying down high-interest debt and making payments on time. It may help to request a credit report and check for any errors that could be hurting your score.
  • Save more for a down payment. Depending on which type of mortgage you get, you may not even need a down payment to be approved for a mortgage. But lenders often reward a higher down payment with a lower mortgage rate. 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. Lenders usually want to see a debt-to-income ratio of 36% or less, but it depends on which type of mortgage you get. Think about paying down some debts to lower your ratio, or consider any opportunities to earn more money.

If your finances are strong, you could lock in a good mortgage rate right now. But if not, you have plenty of time to make improvements and 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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