September 3rd, 2020 7:17 PM by Jackie A. Graves, President
Good news for homebuyers as mortgage rates once again dip, providing an opportunity to secure a loan at a historically low rate.
On Sept. 2, the average mortgage rate for a 30-year mortgage dipped below 3.00% again. While mortgage rates this low once seemed unimaginable, borrowers have repeatedly seen interest rates fall to record lows this summer. While today's average rates don't set a new record, they're still below rates in recent days, are very competitive, and are well worth looking in for most would-be homebuyers who want an affordable home loan.
Here are the average rates for Sept. 2.
30-Year Fixed Mortgage Rate
20-Year Fixed Mortgage Rate
15-Year Fixed Mortgage Rate
Data source: The Ascent's national mortgage interest rate tracking.
30-year mortgage rates
Any time a 30-year fixed-rate mortgage is available at a rate below 3.00%, borrowers will get one of the most affordable loans in history. On Sept. 2, rates have once again fallen below that threshold, with the average mortgage rate coming in at just 2.975%. The opportunity to lock in a loan at such a low rate can make your costs much more affordable over time. In fact, for a $200,000 loan, you'd be looking at a monthly principal and interest payment of $841 (not including taxes and insurance) and a total loan cost of just $302,585.
20-year mortgage rates
Average interest rates on a 20-year fixed-rate mortgage have come in at 2.989% as of Sept. 2. This is slightly higher than the interest charged on a 30-year fixed-rate loan. It's not common for shorter loan terms to have a higher interest rate than longer ones, but even with the fact the rate is slightly higher, your loan would cost less over time to repay due to the fact you're paying interest for a decade less. Monthly principal and interest costs would total $1,108 and the total cost of your loan, not including taxes and insurance, would be $265,943.
With the rate on a 30-year mortgage coming in lower, though, it may make sense to just choose the loan with the longer term and make extra payments if you want to become debt-free sooner.
15-year mortgage rates
With an average interest rate of 2.491% as of Sept. 2, a 15-year mortgage will cost you much less in interest than either a 30-year or 20-year loan both because your interest costs are lower and because you're paying off your loan far sooner. The tradeoff for being debt-free faster is higher monthly payments, though, so you'll need to be sure you can afford them. For a $200,000 loan, you'd be looking at a monthly payment of $1,333 and total loan costs of $239,892.
The average interest rate for a 5/1 ARM is 3.438% as of Sept. 2. ARM stands for an adjustable-rate mortgage, which means your rate is not fixed but rather is tied to a financial index and can change over time. A 5/1 ARM gets its name because it will have its initial rate fixed for the first five years and then the rate can adjust once annually thereafter.
Since rates are at historic lows right now, there's a good chance the rate would end up adjusting upward. Most borrowers would be better off choosing the lower interest rate than 30-year fixed-rate loans are offering and benefiting from the certainty of knowing their interest charges and repayment costs won't change for the life of the loan.
Should I lock in a mortgage right now?
A mortgage rate lock guarantees you a specific rate for a preset period of time -- usually 30 days, but you may be able to lock in your rate for up to 60 days. You'll generally pay a fee for a mortgage rate lock, but in exchange, you're protected in the event that there's a substantial jump in rates between now and your loan closing date.
If you plan to close on your home within the next month, then it could pay to lock in your rate based on how today's numbers look, and also based on recent rate fluctuations. Today's rates are actually quite competitive across the board, so no matter what loan term you're interested in, you have a chance to lock in a good deal.
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