August 20, 2020 – Rates climb to 2.99% – Forbes Advisor
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Mortgage rates edged up over the top three mortgage terms, but they all stayed just below 3% for the fourth week in a row. The average rate on a 30-year fixed mortgage has climbed to 2.99%, according to Freddie Mac’s primary mortgage market survey. The average rates of the 15-year fixed rate mortgage and the 5/1 variable rate mortgage (ARM) have also increased.
Mortgage rates are still lower than they were around this time last year, giving many homebuyers and people looking to refinance existing mortgages the opportunity to save money. money on a new home loan.
30 year fixed rate mortgages
The average 30-year benchmark fixed mortgage rate increased 3 basis points to 2.99%. A basis point is one hundredth of a percentage point.
Last week it was 2.96%. At the same time last year, the 30-year fixed rate was at 3.55%.
Borrowers with a 30-year fixed rate mortgage of $ 300,000 with a current interest rate of 2.99% will pay $ 1,263.19 per month in principal and interest (plus taxes and fees). The total interest paid over the term of the loan will be $ 154,750.09. That same mortgage taken out a year ago would cost an additional $ 33,237.52 in interest over the life of the loan.
15 year fixed rate mortgages
The average interest rate on the 15-year fixed mortgage is 2.54%, up 8 basis points from 2.46% last week.
At the same time last year, the 15-year fixed rate mortgage was 3.03%.
Borrowers with a 15-year fixed rate mortgage of $ 300,000 with a current interest rate of 2.54% will pay $ 2,006.02 per month in principal and interest (plus taxes and fees). The total interest paid over the term of the loan will be $ 61,083.86.
The average rate for a 5/1 variable rate mortgage is 2.91%, just 1 basis point higher than last week.
Last year, the 5/1 ARM was 3.32%.
ARMs are home loans whose interest rate fluctuates according to the market. In the case of ARM 5/1, the first five years have a fixed rate and then change to a variable rate. This means that when the average rate goes up or down, your rate will also go up.
Traditionally, ARMs have lower interest rates than fixed rate options, making them an attractive choice for borrowers who plan to sell before the fixed period expires.
What low rates mean for borrowers
Mortgage rates are at record highs, so this could be a good time for many people who want to save money on their home loan or refinance their existing mortgage.
Borrowers who want the lowest rate should make sure their credit is in good condition. Lenders reserve their ultra-low rates for those with a strong credit profile, as this is a major indicator that borrowers are at low risk of late payment or default. In fact, borrowers with lower credit scores may be charged a percentage point or more than borrowers with very good or excellent scores.
Before you apply for a mortgage, check your credit rating. One way to improve your score relatively quickly is to pay off your debt. You can also apply for credit to pay your monthly bills on time, such as your internet or utility bills.
Here’s how credit scores are ranked:
- Exceptional: 800-850
- Very good: 740-799
- Good: 670-739
- Fair: 580-669
- Poor: 300-579
In addition to your credit score, lenders will look at your debt-to-income ratio, or DTI. This is your total monthly debt divided by your gross monthly income. It is basically a preview of how much you owe versus how much you earn. The lower your DTI, the better your chances of getting a lower interest rate. Most lenders require a minimum DTI of 43% just to qualify for a mortgage or refinance.
Finally, studies have shown that people who shop tend to get lower rates than those who get a mortgage from the first lender they talk to. Know what the current average interest rate is as well as your credit rating, income, debt, and expenses before you start applying. If the lenders are offering you a higher rate than you expected, be sure to ask them why so that you can start improving those areas if you want a lower rate.