Today's best mortgage and refinance rates: Thursday, January 7, 2021

Mortgage rates haven't changed since last Thursday, but refinance rates have decreased. Mortgage and refinance rates are at all-time lows right now, so you may want a fixed-rate mortgage rather than an adjustable-rate mortgage. A fixed rate will lock in a super low rate for the entire term of your loan.

Mat Ishbia, CEO of United Wholesale Mortgage, told Business Insider there isn't much of a reason to choose an ARM over a fixed rate these days.

ARM rates used to start lower than fixed rates for the first few years, and there was always the chance your rate could decrease later. But Ishbia said fixed rates are lower than adjustable rates right now, so you probably want to lock in a low rate while you can.

The best mortgage rates for Thursday, January 7, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.67%2.67%2.71%
15-year fixed2.17%2.17%2.26%
5/1 ARM2.71%2.71%2.86%

Rates from the Federal Reserve Bank of St. Louis.

Mortgages rates have held steady since last Thursday, and they've decreased since this time last month.

In general, mortgage rates are at record lows right now. The downward trend becomes more evident when you look at rates from six months or a year ago.

Mortgage typeAverage rate todayAverage rate 6 months agoAverage rate 1 year ago
30-year fixed2.67%3.07%3.72%
15-year fixed2.17%2.56%3.16%
5/1 ARM2.71%3.00%3.46%

Rates from the Federal Reserve Bank of St. Louis.

Low rates usually signal a struggling economy. Rates will probably stay low as the US continues to deal with the coronavirus pandemic.

The best refinance rates for Thursday, January 7, 2021

Mortgage typeAverage rate todayAverage rate last weekAverage rate last month
30-year fixed2.90%2.93%2.99%
15-year fixed2.33%2.40%2.44%
10-year fixed2.36%2.42%2.50%

Rates from Bankrate.

Mortgage refinance rates are down since last Thursday and since December 7.

30-year fixed rates

With a 30-year fixed-rate mortgage, you pay off your loan over 30 years, and your rate remains the same the entire time.

You'll pay a higher rate on a 30-year fixed mortgage than on a shorter term, like a 15-year fixed loan. In the past, 30-year fixed mortgages have charged higher rates than adjustable-rate mortgage. But right now, 30-year mortgages are more affordable than adjustable mortgages.

Your monthly payments will be relatively low, because you're spreading payments out over a longer period of time than with a shorter-term loan.

The trade-off is that you'll pay more in interest than you would with a shorter-term mortgage, because a) the rate is higher, and b) the interest is also spread out over a longer amount of time.

15-year fixed rates

With a 15-year fixed term, you'll pay down your mortgage over 15 years, and your rate is locked in for the entire time.

You'll pay a lower rate on a 15-year mortgage than on a 30-year mortgage. Between the lower rates and paying off the loan in a shorter amount of time, you'll pay less on a 15-year mortgage over the years.

Your monthly payments will be higher on a 15-year mortgage than on a 30-year mortgage, though. You're paying off the same principal amount in half the time, so you'll pay more each month.

10-year fixed rates

A 10-year term isn't very common for an initial mortgage, but you may refinance into a 10-year fixed mortgage.

The 10-year rates are similar to 15-year rates, but you'll pay off the mortgage five years sooner.

5/1 adjustable rates

An adjustable-rate mortgage keeps your rate the same for the first few years, then changes it periodically. A 5/1 ARM locks in your rate for the first five years, then your rate will go up or down once per year.

Even though ARM rates are at historic lows right now, fixed rates are still the better deal. You could lock in a super low rate for the entire life of your mortgage rather than risk a rate increase later with an ARM.

You used to be able to get a lower rate during the intro rate period with an ARM than with a fixed-rate mortgage. But fixed rates are starting lower these days.

If you're considering an ARM, you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.

How to get a lower mortgage rate

It could be a good day apply for a mortgage, but don't worry if you aren't ready just yet. Mortgage rates should stay low for months (if not years) so you'll likely have plenty of time to take advantage of low rates.

To get the best mortgage rate possible, consider working to improve your finances. Here are some tips for snagging a low mortgage rate:

  • Increase your credit score by paying down high-interest debt and making payments on time. It may help to request a credit report and check for any errors that could be hurting your score.
  • Save more for a down payment. Depending on which type of mortgage you get, you may not even need a down payment to get a loan. But lenders typically offer you a better rate when you have a bigger down payment. Because rates should stay low for a while, you probably have time to save more.
  • Improve your debt-to-income ratio. Your debt-to-income ratio is the amount you pay toward debts each month, divided by your gross monthly income. Lenders usually want to see a debt-to-income ratio of 36% or less, but it depends on which type of mortgage you get. Think about paying down some debts to lower your ratio, or consider any opportunities to earn more money.

If your finances are in a good place, you could lock in a good mortgage rate right now. But if not, you have plenty of time to make improvements to get a better rate.

Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.

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