Mortgage rates drop, housing market remains 'strong' amid coronavirus crisis

Your mortgage loan’s interest rate will determine how much interest you pay over the life of the loan. (iStock)

Whether you're a first-time homebuyer or you already have an existing home loan, there's some good news: Mortgage and refinance rates have been hitting all-time lows since the start of the coronavirus pandemic. Mortgage rates dipped slightly this week, too, remaining below 3%, as of Oct. 1, 2020.

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Mortgage rates are generally lower than interest rates from other types of debt — like a credit card or personal loan. But lately, mortgage and refinance rates have been astonishingly low, particularly after the Federal Reserve's emergency rate cuts.

If you're setting financial goals this year, you'll probably want to add mortgage refinance to the list. A mortgage refinance (especially with low mortgage rates available) can help you save on monthly payments, trim loan amounts and boost your savings account.

Before making any decisions about your home loan, here’s what you should know.

Today's mortgage rates

Here are mortgage rates as of Oct. 1, according to Freddie Mac.

  • Mortgage rates for 30-year fixed mortgage: 2.88% (up 0.02% from the record-low rate of 2.86% set on Sept.10)
  • Mortgage rates for 15-year fixed mortgage: 2.36% (a 0.78% decrease from the year prior)

“As a result of low mortgage rates that have stayed under three percent since July, the housing market has seen a strong, upward trajectory during a very uncertain time,” said Sam Khater, Freddie Mac’s Chief Economist. “We’re seeing potential home buyers who now have more purchasing power and many current homeowners who have the option to refinance their loan for a better rate. However, several factors could disrupt this activity including high home prices, low inventory and lender capacity.”

Mortgage rates range based on housing market conditions where you live and by the lender, but it’s possible to get an average rate and payment based on the U.S. market data as a whole.

Based on the current mortgage and refinance rates, it may be a good time for you to refinance. To see how much you could save on monthly payments today, crunch the numbers and compare loan rates and mortgage lenders using Credible's free online tool.

WHY IT'S A GOOD IDEA TO REFINANCE YOUR MORTGAGE WHILE RATES ARE LOW

Of course, that doesn’t mean that’s the rate borrowers can expect when applying for a mortgage. Your interest rate will largely depend on your credit history and income.

How to get low mortgage rates

Because mortgage loans are much longer than most loan types, you’ll still end up paying tens or even hundreds of thousands of dollars in interest despite low mortgage rates.

As such, it’s crucial to work to qualify for the lowest mortgage rates possible. With Credible, you can find out your rate and payment within minutes. Plus, it's free!

HOW TO LAND THE BEST MORTGAGE AND REFINANCE RATES

Here are some tips on how to qualify for low-interest rates:

  • Improve your credit score
  • Pay down debt
  • Compare rates and mortgage lenders

Improve your credit score: Check your credit score and report to identify areas where you can improve, then take steps to address them.

Pay down debt: Your debt-to-income ratio — how much of your gross monthly income goes toward debt payments — is an important factor mortgage lenders consider. As you pay off debts, you’ll have more room for a mortgage payment.

Compare rates and mortgage lenders: Each lender has different criteria for calculating interest rates, so it’s crucial to take time to shop around and compare rates from multiple lenders before settling on one. Visit Credible to compare mortgage rates and get preapproved.

  • Build up a down payment: The more money you put down, the higher your chances of getting a lower interest rate. This is because the down payment helps reduce the lender’s exposure to risk. 

Even just a slight decrease can help boost your savings account.

For example, an $898.09 monthly payment over 30 years at 3.5% interest amounts to $323,312.40 in payments, including $123,312.40 in interest. 

If you could qualify for a 3.25% rate instead, your monthly payment would be $870.41, and you’d pay $113,348.55 in interest — almost $10,000 less.

Keep in mind mortgage and refinance rates may or may not be similar, depending on market conditions. But if you don’t qualify for the rate you want now, or you see a mortgage rate drop down the road, you can secure a mortgage refinance later to get a lower one.

To ensure you’re getting the best rate, work on your credit card history, pay down debt, bolster your savings account, and compare rates with Credible.

HOW TO INCREASE YOUR CREDIT SCORE FAST

Understanding different types of mortgage rates

Buying a house with a 30-year mortgage loan is a major financial commitment, not only for you but also for lenders. As a result, you can expect to pay interest in exchange for financing.

Home loan rates are presented in their annualized form, and they’re used to help amortize the loan. If you have a $200,000 loan with a 30-year repayment plan and a 3.5% interest rate, for example, you could use a savings calculator to determine your monthly mortgage payment, which would be $898.09.

There are a couple of types of mortgage rates you may come across:

  • Fixed rates: With fixed rates, interest rates remain the same for the life of the loan.
  • ARM rate: An adjustable-rate mortgage (ARM) loan typically starts off as fixed for a set period—say, three, five, seven or 10 years — then changes every year after that based on the current market rates. 

In most cases, a fixed-rate mortgage may be a better option because it provides more certainty. If, however, you don’t expect to be in your new home for longer than an ARM’s fixed period, you could save more money with that option.

To learn more about fixed rates and AMR rates, visit Credible. Credible can show you current mortgage rates and help you make an informed decision regarding your home loan.

If you still need more information on mortgage rates, you should consider reaching out to a financial advisor for guidance. It's always good to know as much information as possible — especially regarding mortgage rates — when making a decision about your home loan.

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