In June, 30-year fixed rate mortgages climbed above 6% — but they have since fallen. The national average for 30-year fixed mortgages is now 5.54%, while for 15-year fixed-rate mortgage loans it is 4.80%, according to Bankrate data from August 3. Here are a few things to know now if you want a mortgage . ,See the lowest mortgage rates you can get now here,
Rates on 15-year mortgages continue to be lower than 30-year mortgages — so if you can afford a shorter term, do it. Adjustable rate mortgages (ARM) may also be worth considering, but only if it makes sense for your long term plans. The latest Bankrate data shows that average rates on 5/1 ARMS (rates are fixed for five years, then adjust) are 4.18%, lower at the start than both the 15-year and 30-year fixed rate mortgages. But it’s important to note that ARMs tend to make the most sense for short-term homeowners who only plan to be in the same home for 5 to 7 years. Because ARM rates become variable, “ARMs can be risky, and in the long run they may end up costing more than a fixed mortgage with a higher upfront rate,” says Jacob Channel, LendingTree’s senior economic analyst, recently told MarketWatch Picks.
No matter the type of mortgage you get, experts recommend shopping around, by getting quotes from 3 to 5 lenders and figuring out your credit score (improve it if needed) and debt-to-income ratio (DTI), which can help you determine what rate you can expect to pay. To calculate your DTI, divide your monthly debt payments (mortgage; credit card payments; auto, student or personal loans; child support) by your gross monthly income. If the number you come out with is at or below 36%, your chances of qualifying for a mortgage, and at a better rate, are better than if you come out with a higher number as your DTI.
There are also other ways to decrease your mortgage rate like using discount points, which are fees paid to reduce an interest rate; if you can afford to buy them, they can save you big money in the long run. Typically, one point decreases the interest rate by 0.25%, though this can vary. “When you pay discount points, you’re handing the lender a chunk of interest payments up front in exchange for paying less interest every month,” Holden Lewis, home and mortgage expert at Nerdwallet, recently told MarketWatch Picks. But note that there may be limits to how many discount points you can buy, and buying points may not make sense, especially if you don’t plan to stay in the home for long.
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