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Here’s What Today’s Mortgage Interest Rates Are (Oct. 15)

By: David Bach  |  Last Updated: October 21, 2020
Financial Expert & 10x New York Times Bestseller
IN THIS ARTICLEWhat is a mortgage?
What is a mortgage rate?
How to take advantage of today's low rates

Mortgage interest rates have continued to dip to record lows over the last few months amid the Covid-19 pandemic — and we hit another low this month, the tenth record this year.

As of October 15, 2020, the average mortgage rate on a 30-year fixed-rate mortgage is 2.81%, the average rate on a 15-year fixed-rate mortgage is 2.35% and the average rate on a 5/1 adjustable-rate mortgage (ARM) is 2.9%. That’s according to mortgage loan company Freddie Mac, which updates the average rates weekly.

These are historically low rates. The last time we saw rates drop a ton was in November 2012, in the aftermath of the recession, when the average rate on a 30-year FRM dropped to 3.31%. Low rates mean it’s an excellent time to consider buying a home or refinancing your mortgage if you already own one. But more on that later. Let’s start with some basics.

What is a mortgage?

Very simply, a mortgage is a loan you get — usually from a bank or other financial institution — so you can buy a house or other piece of real estate. What makes it a mortgage as opposed to an ordinary loan is that the collateral you put up to guarantee repayment happens to be the real estate you’re using it to buy.

Let’s say you decide to buy a home for $200,000 and you have enough money in the bank so you can pay 20% of the purchase price in cash ($40,000). That means you will need to borrow $160,000 to close the deal. This $160,000 loan will be your mortgage. You pay the seller $40,000 in cash, the lender gives them another $160,000 and you get the legal title to the house — with one catch. If you fail to pay off the mortgage as promised, the lender can foreclose, evict you from the premises and recoup what cash it can by auctioning off what used to be your property.

Assuming you do make your payments on time, you will eventually build up what’s called equity in your home. Your equity is basically the amount of your home’s value that belongs to you. Going back to the example above, if you have a $160,000 mortgage on a home that’s worth $200,000, you will have $40,000 in equity from the get-go. 

There are a lot of different types of mortgages. They all have three basic components: there’s the size of the mortgage (how much you’re borrowing), the term (how much time you have to pay it off) and the cost (how much interest the lender is charging you).

What is a mortgage rate?

When you get a mortgage, you agree to repay the loan to the lender at a certain interest rate. This is your mortgage rate.

Rates depend on the state of the economy. In general, bad economic times can move mortgage rates lower (like we’re seeing right now), while good news can push rates higher. But the rate you’ll get also depends on your financial condition and credit record. A lender will pull your credit score before lending you money and, based on what they find, will decide if you qualify for a mortgage and what interest rate they’ll charge. 

In general, a higher score means it’ll be easier to get a loan and you won’t have to pay as much in interest. You’ll appear less risky to lenders. If you don’t have a strong credit history, you’re considered higher risk and will probably get a higher mortgage rate. That’s why I stress the importance of paying attention to your credit even years before you plan to buy a home.

To ensure you’re getting the best deal on your mortgage, I want you to call up at least three to four mortgage lenders to compare rates and terms. Think about it this way: When you go out to make a major purchase, like a car or big appliance, you don’t simply walk into the first showroom you see and accept the first price the salesperson quotes you. A good shopper goes to a number of different stores, compares offers and even plays competing retailers against each other. You can do the same when shopping for a mortgage. Keep in mind that the best deal isn’t just about finding the lowest mortgage rate. Mortgage companies charge fees, too, so you’re looking for the best combination of interest rate and fees.

If you don’t know where to start, check out my top-recommended mortgage lenders.

How to take advantage of today's low rates

As I mentioned earlier, now is a historically great time to refinance your mortgage or get in the game of homeownership if you’re still renting. 

If you can refinance and get a rate that’s even just 0.5% lower, that can save you a ton over time: On a 30-year mortgage, if your balance is over $250,000, there’s a good chance you could save over $50,000 during the life of your loan.

Keep in mind that it’s getting tougher to refinance. Banks are swamped with business and many are also looking for a high credit score. 

Now is the time to act. The No. 1 mistake I see people make when refinancing their mortgages is waiting to act. Don’t put it off in hopes that rates will go lower. Mortgage rates shift daily and can be affected by a variety of factors, including oil prices and 10-year Treasury bonds. Because companies have been warning that the Covid-19 pandemic will hurt their earnings, the Federal Reserve has kept rates down. But that won’t last forever.

Now is the time to jump on this. Read my guide to refinancing here.

If you’re currently renting and convinced that now may be the right time for homeownership, great! Learn more with me: I partnered with Money.com to create The First-Time Homebuyer Challenge, which is a free, video-based course designed to help you learn the five critical steps of the home-buying process.

If you’re still on the fence about buying, it doesn’t hurt to complete the challenge and be better prepared to buy when the time is right for you. Your first home may be closer than you think!

See average mortgage rates from previous weeks:

Check out my top recommendations for mortgage lenders

Read next: Why Right Now Is the Best Time to Refinance Your Mortgage