Today’s Mortgage Interest Rates: Aug. 27, 2020—Rates Drop, Staying Below 3% for 5th Week
[Forbes, Getty Images]
Average mortgage rates this week fell for both 30-year and 15-year fixed-rate mortgages, while the 5/1 adjustable-rate mortgage (ARM) was unchanged. The average rate on a 30-year fixed mortgage dipped to 2.91%, according to Freddie Mac’s Primary Mortgage Market Survey.
Mortgage rates have remained below 3% for five straight weeks, the longest run of the lowest rates on record. This low-rate bonanza has sparked high levels of refinancing and given people more incentive to buy homes. In July, pending home sales jumped 5.9%, the third month of increased activity, according to the National Association of Realtors.
30-Year Fixed-Rate Mortgages
The average rate for the benchmark 30-year fixed mortgage fell 8 basis points to 2.91%. A basis point is one one-hundredth of a percentage point.
Last week, it was 2.99%. This time last year, the 30-year fixed was at 3.58%.
Borrowers with a 30-year fixed-rate mortgage of $300,000 with today’s interest rate of 2.91% will pay $1,250.30 per month in principal and interest (taxes and fees not included). The total interest paid over the life of the loan will be $150,106.91. That same mortgage taken out a year ago would cost an additional $39,697.12 in interest over the life of the loan.
15-Year Fixed-Rate Mortgages
The average interest rate on the 15-year fixed mortgage is 2.46%, sliding 8 basis points from 2.54% over the last week.
This time last year, the 15-year fixed-rate mortgage was at 3.06%.
Borrowers with a 15-year fixed-rate mortgage of $300,000 with today’s interest rate of 2.46% will pay $1,994.72 per month in principal and interest (taxes and fees not included). The total interest paid over the life of the loan will be $59,050.26.
The average rate on a 5/1 adjustable-rate mortgage is 2.91%, the same as last week.
Last year, the 5/1 ARM was 3.31%.
ARMs are home loans that have an interest rate that fluctuates with the market. In the case of 5/1 ARMs, the first five years have a fixed rate and then switch to a variable rate after that. That means when the average rate rises or falls, so will your rate.
Traditionally, ARMs have lower interest rates than fixed-rate options, making it an attractive choice for borrowers who plan to sell before the fixed period expires.
What Low Rates Mean for Borrowers
Mortgage rates are record lows, so this could be an opportune time for many folks who want to save money on their home loan or refinance their existing mortgage.
Borrowers who want to get the lowest rate should make sure their credit is in good shape. 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 for late payments or default. In fact, borrowers with lower credit scores can be charged one percentage point or more than borrowers with very good or excellent scores.
Before you apply for a mortgage, check your credit score. One way you can improve your score relatively quickly is to pay down debt. You also can request credit for paying monthly bills on time, such as your internet or utility bills.
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’s basically a snapshot of how much you owe versus how much you earn. The lower your DTI, the better chances you have 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 around 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 what your credit score, income, debt and expenses are before you start applying. If lenders offer you a rate that’s higher than you expected, be sure to ask them why so you can begin improving those areas if you want to qualify for a lower rate.
By Natalie Campisi