Current Mortgage Rates and How to Get Low Rates

Are you looking for current mortgage rates? I will not just give you the current mortgage rates; I will also provide you a guide on how you can enjoy low rates on your mortgage. The table below gives you a summary of the current mortgage rates based on their different tenor. It is not enough to know the current rates; it is good to what the rates have been in the last three months period. This will help you see the trends whether the rates are increasing or decreasing. You are encouraged to check the table often as you can see that the rates are not static. We will try as much as possible to update the rates on a weekly basis. If you notice that the mortgage rates are low, you may want to take advantage of it. This may mean you getting a new mortgage or refinancing an Adjustable Rates Mortgage (ARM) in order to lock in the low rate in a Fixed Rate Mortgage. However, mortgage refinancing may come with closing costs such as mortgage repayment penalty, mortgage discharge fee and legal fees. But you can negotiate this with your lender..

Current Mortgage Rates

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The mortgage rates table above is to give you a clue of what is obtainable in the market. It is not automatic that the rates will apply to everyone. The rates that will apply to individuals may vary based on their credit status and other factors that the lenders may like to pay attention to. If you are planning to apply for a mortgage, it will be to your advantage if you can get the best rate. Before I give you tips on how to get best mortgage rates, let me quickly highlight why you need to ensure that you are not paying too much interest on your mortgage.

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Advantages of low mortgage rates

  • Become a homeowner: High mortgage rates scare potential homeowners. If you notice the trends of mortgage rates in the past, you will realise that more people usually buy their home any time the rates are at the lowest. So, if the rates are low, it may be the right time for you to buy your first home. Even, if you are already a homeowner, you can decide to buy your second home. One of the hidden advantages of low mortgage rates is that it lowers the amount of qualifying income you need to get a loan. This is very useful for first time homeowner with moderate income. Because the interest rate is low, you will not require much money to meet a cash reserves covering two months repayment amounts as some lender may require from you.
  • Ability to pay off your mortgage fast: If you are borrowing, compound interest is not actually your friends. If the interest rate on any loan is too high, chunk of the repayment you make will just be going towards serving the debt while the principal remains. But with low mortgage rates, the interest you will need to pay on the mortgage will be low too. This means that greater part of the repayments you make can be channelled towards reducing the principal amount. By this, you will be able to pay off your mortgage quickly.
  • Loan consolidation: It is possible you have other loans such as auto loans or other high interest loans. If the interest rate on your mortgage is low, you may want to consolidate other loans with your mortgage loan so as to take advantage of the low mortgage rates.
  • Invest into future: Interest saved is interest earned. Since you are not paying much interest, you will have more residual income available for investment purpose. You can invest the money you would have spent on interest payment in mutual fund. The money may seem small to you. But over the years, the amount can grow to be significant.

How to enjoy low mortgage rates

You can actually get the rates that are different from the general mortgage rates been published by the Federal Reserves or the rates you see on various websites. You only need to know what you need to do to make it happen. Below, I am going to give you some tips on what you can do in order to keep your mortgage loan rate low.

Get the right type of mortgage: Basically, there are two types of mortgage namely Fixed Rate Mortgages and Adjustable Rate Mortgages (ARMs). Knowing the right mortgage to go for can save you some bucks in interest payment. Let me explain the two types of mortgage briefly. If you choose Fixed Rate Mortgages, it means that the interest rate set at the point when you obtain the mortgage will remain unchanged throughout the loan period. That is, you will pay the same interest rate all through the loan period. Please note that you may not pay the same interest amount every month. The interest amount based on the same interest rate will keep reducing every month as you keep paying down the principal. But the monthly payments (including principal and interest) remain the same over the life of the mortgage.

In the case of Adjustable Rate Mortgages (ARMs), the rate on your mortgage may go up or down depending on the prevailing interest rates index. In most cases, the interest rate on the Adjustable Rate Mortgages (ARMs) is usually lower than that of Fixed Rate Mortgages at the initial stage. This can make it to be tempting to borrowers. But after the introductory period is over, which can be for months, one year or few years, the interest rate may change. Some lenders set a limit to how low or high the interest rates may go on Adjustable Rate Mortgages. So, before you take any ARM, it is important to find out about the cap your lender sets on the mortgage. If the price is going to change, you should be aware of how high or frequent the interest rate may change. What appears to be very cheap initially may become too expensive after the interest rate has been adjusted. This may make it difficult for you to make your monthly payments as the repayment amount might have grown beyond your income level.

You may be asking, “Which is better between Fixed Rate Mortgages and Adjustable Rate Mortgages (ARMs)?” Well, it depends on your situation. As a general guideline, Fixed Rate Mortgages may be good for the following reasons:

  • Stable interest rate: After you have been granted your mortgage, you are not perturbed about the likely hike in the mortgage rates. So, if you perceive that the mortgage rates may soon increase, it will be better to go for Fixed Rate Mortgage.
  • Planning and Budgeting: Since you will be paying the same amount every month over the life of the mortgage, you can plan your cash flow very well. You already know the exact amount you need to set aside every month towards the repayment of the mortgage. Therefore, borrowers can accurately predict their future payments when preparing their budgets.
  • It is easy to understand: For a new homeowner who may not know the technicalities about mortgages, you can easily understand exactly what your mortgage is and the amount of interest you will need to pay on the amount.

The main disadvantages of Fixed Rate Mortgages are; you will need to be paying the same interest rate even if there is a fall in the interest rate index. You may need to refinance your mortgage before you can enjoy lower rate and this usually comes with additional closing costs. The closing costs may swallow the savings you are trying to make on the interest payments. Also, you may need to pay early repayment penalty if you want to liquidate the Fixed Rate Mortgage before its maturity. Furthermore, if you plan to stay in the house just for a short period or you intend to sell the house very soon, you may miss the initial lower rate that adjustable rate mortgages offer.

Adjustable Rate Mortgages (ARMs): The following are what make Adjustable Rate Mortgages (ARMs) to be attractive to some people:

  • Adjustable Rate Mortgages will help you save some interest if you plan to sell or move out of the house before the introductory period is over.
  • It allows borrowers to qualify for larger loan. This is beneficial for first time homeowners who may not have much money set aside for the loan repayment.
  • You will be able to take advantage of lower rate if there is a fall in the interest rates. This is contrary to the fixed rate mortgages which you may need to refinance before you can take advantage of the fallen rates. So, you don’t need to pay additional closing costs.

With all the attractiveness of Adjustable Rate Mortgage, it equally has some drawbacks.  The mortgage that seems cheap and affordable initially may become too expensive to manage because of the sharp increase in the interest rate. Also, the applicable terms and conditions may be very difficult to understand especially to new homeowners.

Other ways to get lower mortgage rates

Improve your credit score: It is no longer news that those people with excellent credit score enjoy better rates on loans and insurance. If you want to get low mortgage rates, the first place to begin will be to work on your credit score. You may like to apply for your free credit report from AnnualCreditReport.com. Other websites may be offering you free credit report but they may likely request that you provide your credit card information. AnnualCreditReport.com is the only source authorised by law for your free credit reports. Your credit report will reveal the areas you may need to improve in order to improve your credit score. For instance, if you have not been making your card payments promptly, you may need to start doing so. Also, some people usually make the mistake of maxing out their cards. They think that this does not matter as long as they pay off their card balances at month end. This is wrong. If you want to have a healthy credit score, you may need to keep your credit utilization ratio below 30%. Also, your billing cycle may not necessarily be the end of the month. Paying at the end of the month may mean that you are carrying a balance on your card if the billing cycle is earlier. If you don’t know your billing cycle, you may ask from your card issuer.

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Shop around: If you really want cheap mortgage rates, you should be ready to do some leg works. Even with the help of internet, you can shop around and compare mortgage rates from the comfort of your home. However, you need to understand that the lender with the cheapest mortgage rate may not be the cheapest in the actual sense. You need to consider other costs such as closing costs.

Ask for low rates: If you have excellent credit score, you can actually brag on this. Financial institutions are willing to lend money to people they can trust that will repay their loans. You can leverage on your excellent credit score by asking for low mortgage rates. Some of them will be ready to grant your request as they won’t like to lose you to their competitors. Additionally, if you opt for auto repayment, you may qualify for certain discount.

Secure stable job: Before you apply for mortgage, ensure that you have stable job. This will serve as guarantee to the lenders that you will be able to meet up with your monthly payments. In fact, you can save up to minimum of two months repayment amount besides your down payment. This can project you as a good borrower which can translate to lower mortgage rates.

Increase your down payment: If you can make as much as thirty per cent down payment on your mortgage, you may likely get a better rate than someone that pays just twenty per cent. For example, if your house is going to cost $100,000 and you are able to make thirty per cent down payment, this means you will only require $70,000 mortgage loan. But if you only make twenty per cent down payment, you will need $80,000 mortgage loan. You will agree with me that the risk involved in lending you $70,000 is lower than the risk involved when you are requesting for $80,000 mortgage loan. This lower risk may qualify you for lower mortgage rate whether you are applying for 30 year mortgage, 15 year mortgage or 5 year mortgage.

Reduce your debt-income-ratio: If you have existing loans you are repaying every month, adding a new mortgage will definitely increase your monthly repayment. If your debt-income-ratio is high, lenders may profile you as high risk customer. To reduce your debt-income-ratio, you can pay off some of your existing debts or increase your income. You can increase your income by changing your job to a better paying job. Alternatively, you can take on second job if your existing job will allow it. You can also start your side business. But you need to understand that starting a new business has its own risk.

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Borrow through government: Government loans have proved to be the cheapest. You can always take advantage of by visiting GovLoans.gov to find the eligibility requirements. Whether you want to buy a single family home or trade equity for cash from your home U.S. Government has different schemes for its citizens. Although U.S. Government may not lend money directly to buyers to purchase a home, it has approved lenders through U.S. Department of Housing and Urban Development and U.S. Department of Veterans Affairs that can make loans to individuals.  They guarantee a portion of the loan and this makes the lenders to give your more favourable rates and other terms. For example, if you are borrowing under VA Loans scheme, you may not be asked to make down payment before you can be granted the loan. Also, because the loans are guaranteed by the government, the lenders will not ask you to buy Private Mortgage Insurance. There is a limit to the amount of closing costs the lenders can ask you to pay. You can even prepay your mortgage without any any penalty. Therefore, the loans are not only less stringent, you will enjoy more favourable interest rates. The available loan programs include:

  1. Basic FHA Insured Home Mortgage
  2. Cash-Out Refinance Loan
  3. Combination Mortgage Insurance for Manufactured Home and Lot
  4. Direct Home Loans for Native Americans
  5. Energy Efficient Mortgage Insurance
  6. FHA PowerSaver Home Energy Retrofit Loan Pilot Program
  7. Home Mortgage Insurance for disaster Victims
  8. Home Rehabilitation Mortgage Insurance
  9. Home and Property Disaster Loans
  10. Indian Home Loan Guarantee Program
  11. Indian Home Loan Guarantee Program (Section 184)
  12. Interest Rate Reduction Refinance Loan (IRRRL)
  13. Loan Management
  14. Manufactured Home Loan Insurance
  15. Property Improvement Loan Insurance
  16. Rural Housing Loans
  17. Rural Housing: Farm Labour Housing Loans and Grants
  18. Rural Housing: Housing Repair Loans and Grants

If you can work on the points discussed above, though you may not get the cheapest mortgage rates, you will likely get your mortgage at a reasonable rate. Nevertheless, besides the points I have mentioned above, there are other factors which may determine the mortgage rates per time. Some of them you may not have control over but they can provide a guide whether it is a right time to obtain a mortgage loan

Factors Affecting Mortgage Rates

Inflation: During inflation, dollar loses its purchasing power. Mortgage lenders will like to charge interest rates that are above the prevailing inflation rate. This is the only way they can make profits from their businesses too. So, if there is a rise in inflation rate, this will definitely impact on mortgage rates. If you are seeking for low mortgage rates, you may not be able to get this in an inflationary economy.

Government Policy: The Federal Reserves Bank has the overriding role in determining the direction the interest rates will take through its different policies. For instance, the level of money made available in circulation can influence the mortgage rates and other interest rates. When there is enough money in the circulation, there is bound to be reduction in interest rates. On the other hand, any time Federal Reserves Bank decides to mop up money in the circulation, this will usually reduce the money available in the economy. This will make less money available for borrowing. You know what happens when there is more demand than supply. The interest rates will go up. This affects mortgage rates as well.

Other Investment Products: Investors will like to direct their money to investment products that will offer them the best returns. If the interest rates on bonds are significantly high, the mortgage lenders may like to increase the interest rates on their mortgages too in order to keep the investors happy. Since government and corporate bonds usually offer competing fixed income to investors, whatever happens to them will definitely impact mortgage rates.

Other Economic Indicators: In a recessionary economy, one of the sectors that is easily affected is real estate market. If the Gross Domestic Product is low and there is a fall in employment rate, these usually lower the disposable income available to individuals. During such period, consumers focus more on foods and clothing. People may not have money available to buy home. Because of low demand, mortgage rates will normally come down. If you are part of the privileged few individuals with excess funds during recessionary economy, this is actually a good time to buy your home. You can lock in the low rates in a fixed rate mortgage.

Type of Lenders: I have touched this before but I need to re-emphasize it here. Loans from governments are usually cheaper. If you qualify for it, you may like to take the advantage of the low rates they offer. But if you want to get your mortgage through private lenders, they may charge different mortgage rates. So the mortgage rate you will get depends on the lenders you visit. Each lender has their own policies and terms which may affect the mortgage rates they charge. Some lender may try to charge low mortgage rates while they charge some other costs which they may not mention on their websites. You will only get to know about this upon inquiry or when you decide to sign up for the mortgage. That is why it is always very important to be sure that you read and understand the terms and conditions of any loan. If you shop around, you will be able to compare different mortgage rates from various lenders and then choose the one that is best for you.