A guide to current mortgage rates

Current average APRs and weekly mortgage rate analysis

Elissa Derek Silva

Elissa Suh & Derek Silva

Published September 24, 2020

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KEY TAKEAWAYS

  • The coronavirus pandemic has disrupted the economy and led to lower mortgage rates

  • Mortgage rates for 30-year fixed-rate mortgages will go down more in 2020, or at the very least remain low, according to mortgage industry professionals

  • The exact mortgages rates a lender offers you will vary based on where you live and your financial situation

Mortgage rates rose slightly but are still near record lows. Rates for 30-year fixed-rate mortgages have been below 3% for nine straight weeks, after only falling below 3% for the first time (since records began in 1971) in July 2020. If your finances are secure, now is definitely a good time to consider a new mortgage or a mortgage refinance. You may still have a difficult time finding your next home, though: the number of available homes is dwindling and home prices have been rising during the pandemic.

Current average mortgage rates for Sept. 24, 2020

Mortgage typeThis week's APRLast week's APRChange from last week
30-year fixed-rate mortgage2.90%2.87%+0.03
15-year fixed-rate mortgage2.40%2.35%+0.05
5/1 ARM (5-year adjustable-rate mortgage)2.90%2.96%-0.06

Is now a good time to get a new mortgage?

Mortgage rates are as low as they’ve ever been, so now is a good time to consider a mortgage if you can afford it. You also may not want to put off your search. Purchase applications are up 25%, according the Deputy Chief Economist at Freddie Mac, but the availability of homes is down 38.8% compared to last year, according to data from the National Association of Realtors (NAR). With low supply and high demand in the real estate market, home prices are increasing. The NAR data also shows that median home prices are up 11.1% year-over-year, and that homes are spending less time on the market compared to last year.

Another important consideration when getting a mortgage is that the economic uncertainty caused by the coronavirus pandemic has made many lenders more strict about who qualifies for a mortgage. You may have a hard time getting a good rate, or any loan at all, if your credit score is low or if the mortgage payments are worth more than you can reasonably afford.

Understand your monthly mortgage payment better by looking at your mortgage amortization schedule.

Is now a good time to refinance?

With mortgage rates so low, refinancing activity is up 86% from last year. You may want to consider a mortgage refinance if you can qualify for an interest rate that’s lower than your current loan. Even a few tenths of a percent could help lower your monthly payment and save you hundreds or thousands of dollars over the lifetime of the loan.

However, if you’re looking to refinance your mortgage, you may want to do so before the end of the year. Fannie and Freddie Mac, government-sponsored enterprises that insure mortgages, will institute a refinance fee of 0.05% of the total loan amount starting December 1. The “adverse market” fee is meant to make up for losses due to defaults and forbearances caused by the pandemic.

The fee is technically levied on lenders by Fannie and Freddie, but it will likely be passed along to the borrowers in some way, resulting in an additional $1,400 in refi costs, according to experts. The fee will only apply to refinance loans above $125,000 from lenders backed by Fannie and Freddie.

Always remember to shop around for the best rate since the exact mortgage rates a lender offers will vary based on where you live, your financial situation, and the lender’s own financial situation.

Will mortgage rates go down more in 2020?

Low rates are likely here to stay for the foreseeable future and there is still a possibility rates will fall further later in the year. Fannie Mae forecasts that average mortgage rates could fall to 2.8% by the end of 2020, and potentially 2.7% by the end of 2021. That prediction could change, though, as Fannie Mae has already revised their forecasts downard multiple times.

Analysis: What’s affecting mortgage rates today?

The overall strength of the U.S. economy continues to be a major factor affecting mortgage rates. Mortgage rates tend to fall when the economy isn’t doing well, and even though stock markets hit record highs in early September the U.S. is officially in a recession according to the National Bureau of Economic Research. A slow recovery for the economy as a whole could help keep mortgage rates low into 2021, as could any future resurgence in the number of COVID-19 cases.

Here are three factors we’re watching for their possible impact on future mortgage rates:

  • The Federal Reserve
  • The Treasury bond market
  • The U.S. economy and unemployment

The Federal Reserve & mortgage rates

The Federal Reserve decided in its September meeting that it will hold the federal funds rate at the zero bound (meaning the rate is between 0% to 0.25%). Rates will likely remain at this level until 2022 or 2023. The Fed is also buying billions of dollars’ worth of corporate bonds and mortgage-backed securities.

These actions by the Federal Reserve will likely have a big impact on mortgage rates. Mortgage lenders use the federal lending rate to help set their own interest rates, and keeping the federal funds rate as low as possible should help mortgage rates stay low for the foreseeable future.

The Treasury bond market as an indicator of mortgage rates

More than any other factor, mortgage interest rates tend to follow the yield on the 10-year Treasury bond. The yield usually falls as more investors buy bonds, which are a less risky investment than stocks, so decreasing bond yields may signal that investors have lower confidence in the stock market.

The Treasury yield fell this week, staying near record lows, as investors moved their money into safer assets following a stock market drop and the Fed’s recent meeting. The yield will likely increase in the future if investors’ confidence in the U.S. stock market strengthens, especially if a COVID-19 vaccine is released.

Bonds have been less reliable as a predictor of mortgage rates earlier in the coronavirus pandemic, though the two have become more aligned in recent months.

The economy & unemployment

Mortgage rates tend to stay low when the economy underperforms, and that has remained true during the coronavirus pandemic. U.S. GDP fell at a record rate of 32.9% in the second quarter of 2020, according to the Department of Commerce. That’s the biggest quarterly drop since 1921 and is far more severe than the 8.4% drop in GDP at the height of the financial crisis of 2008.

Even with some current signs of recovery in July and August, the overall U.S. economy appears stalled and U.S. unemployment remains high. The unemployment rate is 8.4% — the highest it’s been since December 2011. The unemployment rate fell from July to August, but the number of new unemployment claims has largely remained constant over the past month.

The Labor Department reported 870,000 new claims for unemployment insurance (seasonally adjusted). That number is slightly higher than last week, but more significantly, it’s still higher than it’s been since 1967 (when records began) and it’s about four times higher than the number of weekly claims before the coronavirus pandemic. There were also 630,080 new claims for Pandemic Unemployment Assistance, which covers part-time workers and freelancers who don’t qualify for standard unemployment benefits.

All told, about 1.5 million people filed for unemployment last week, according to Labor Department data. There were also more than 24 million people who were already receiving unemployment benefits and continued receiving them (about 1.5 million people were receiving unemployment benefits this time last year).

Will there be a stimulus bill?

With the CARES ACT expiring at the end of July, millions of Americans have been receiving $600 less in monthly unemployment benefits. According to a new report from the Federal Reserve, the pandemic responses by the government (including the CARES Act) led to an apparent increase in Amercans’ financial well-being and their ability to cover expenses. In particular, low-income households saw benefits. More broadly, the Federal Reserve of Minneapolis previously estimated that the U.S. could lose $19 million in consumer spending each week with the end of the CARES Act.

There does not appear to be a new stimulus bill on the horizon, with Republicans, Democrats, and the White House unable to agree on what a new bill should include. In the interim, President Trump signed an executive order on August 8 to provide $300 in extra unemployment pay, called Lost Wages Assistance. States have the option to add an additional $100, but many states may be unable to afford the extra spending right now. As of September 17, 49 states and the District of Columbia have signed up for Lost Wages Assistance, but it will still take until early October for some states to deliver the payments to recipients. FEMA and the Labor Department estimate that the program will provide four or five weeks of payments.

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Deep dive: Mortgage rate factors you can’t control

There are a number of factors that determine current mortgage rates, only some of which you can control. In general terms, mortgage rates are lower (and better for homebuyers) when the economy is struggling or when the economic outlook is not good. That’s because investors look for safer, longer-term investments when they think the economy is on the decline. For example, they buy more 10-year Treasury notes instead of short-term notes (this is what economists are referring to when they talk about the yield curve inverting). The mortgage interest rates trend similarly to the path of the 10-year Treasury bond market.

Investors also buy more mortgage-backed securities (MBSs) when the economy isn’t doing well. An MBS is a collection of individual mortgages, and people can trade them on the market the same way they trade bonds.

Banks and other mortgage lenders can offer lower mortgage rates to customers when investors are buying more MBSs. On the other hand, less demand for MBSs can lead to an increase in mortgage rates.

General economic factors have a big impact on mortgage interest rates. This includes things like the strength of the job market, the inflation rate, and the state of the overall housing market. International economies and U.S. trade relations also impact mortgage rates.

With something like employment numbers, the biggest impact to mortgage rates comes when the data in government reports don’t match expectations. Regardless of whether or not the numbers are good or bad, changes in mortgage rates usually come when the numbers differ greatly from what investors predicted they would be.

The Federal Reserve also sets the interest rates for banks and other financial institutions to lend money to each other, which is called the federal funds rate. These financial institutions attach a premium to the federal rate to come up with their own lending rate: the prime rate.

Using the prime rate as a benchmark, lenders and financial institutions then offer a range of loan interest rates to consumers. For example, you may get a mortgage loan with an interest rate above 4% even if the average national mortgage rate is 3.65%. At the same time, you could get a lower interest rate.

How to get a low mortgage interest rate: Mortgage rate factors you can control

What specific rates a lender offers you depends largely on your credit score and other details like the loan amount and loan type. These are factors you can influence (to a degree). You can take steps to improve your credit score. You can also ask for a smaller mortgage loan by choosing a house you can afford and then making the biggest down payment you can afford.

Try our free mortgage calculator to see how much of a mortgage you can afford based on the current mortgage rates.

Lenders often look closely at the borrower’s loan-to-value ratio (LTV ratio). This is the amount of the loan as a percentage of the home’s value. If you get a $180,000 mortgage for a $200,000 home, the mortgage (and your LTC ratio) is 90%. LTV ratios above 80% are seen as more risky and result in higher interest rates.

Understand your monthly mortgage payment better by looking at your mortgage amortization schedule.

A mortgage is a big financial decision, so it’s important to make the best decision you can. Here are four steps to help you find the best mortgage rates:

1. Maximize your credit score

Mortgage lenders use your credit score to determine what rates they will offer you. In particular, they look at your FICO score and a higher score will get you better rates. That’s why it’s important to do as much as you can to increase your credit score before you apply for any new loans. Learn more about what a good credit score is and how to get the best credit score.

2. Know what type of mortgage you need

There are multiple types of mortgage loans and different features, too. What you should get depends on your financial situation. For example, you might get a mortgage through a government loan program, like a VA loan or FHA loan or conventional mortgage from a private mortgage lender. In certain circumstances, you may also want to consider an adjustable-rate mortgage a hybrid ARM mortgage, or a traditional mortgage with a fixed rate. People who want to pay off debt more aggressively may opt for a shorter loan term.

Here are 13 mortgage questions you should ask yourself before getting a home loan.

3. Compare rates from multiple lenders

Like any other purchase, you should shop around before getting a mortgage. If you are a customer at a local bank or credit union, make sure to ask what kind of rates they can offer. Sometimes long-time customers receive preferential (lower) interest rates.

Keep in mind that a mortgage rate is expressed as an annual percentage rate, or APR for short. Annual percentage rates reflect the lender’s interest rate, but they are also affected by other lender costs, such as points and fees.

4. Make the right down payment

For conventional loans, the more you put as a down payment, the smaller your loan amount and monthly payment and overall mortgage costs will be.

This is a big deal because the longer your mortgage term, the more you will have to pay in mortgage interest. Over the term of a mortgage, interest can cost nearly as much as the mortgage principal itself.

If you make a down payment of less than 20%, you will also have to pay private mortgage insurance (PMI). The closer your down payment is to 20%, the more you can save on PMI. Also, make sure to set aside some money to pay cover closing costs and other unexpected costs of owning a home.

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About the authors

Personal Finance Editor

Elissa Suh

Personal Finance Editor

Elissa is a personal finance editor at Policygenius in New York City. She writes about estate planning, mortgages, and occasionally health insurance. In the past she has written about film and music.

Personal Finance Expert

Derek Silva

Personal Finance Expert

Derek is a tax expert at Policygenius in New York City. He has written about multiple personal finance topics in the past, and his work has been covered by Yahoo Finance, MSN, Business Insider and CNBC.

Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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