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Mortgage rates have leveled off slightly. In mid-June, 30-year fixed mortgage rates climbed above 6% and stayed there for a while. But this month, they’ve mostly kept below the 6% market, with the latest data showing that 30-year fixed mortgages hit 5.84%, according to Bankrate data from July 7. And the national average for 15-year fixed-rate mortgage loans, after climbing above 5% in June, decreased to 4.96%, according to Bankrate data. But will they continue to ease or are we headed for more rate increases? ( See the lowest mortgage rates you can get now here .)
If you’re able to afford one, rates on 15-year mortgages are lower than 30-year mortgages. Adjustable rate mortgages (ARM) are also 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 4.25%, significantly lower at the start than both the 15-year and 30-year fixed rate mortgages, but 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.
Regardless of the loan you get, experts recommend gathering 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. ( See the lowest mortgage rates you can get now here .)
Still looking for ways to bring your mortgage rate down? Buying discount points, which are fees paid to reduce an interest rate, can help; one point generally 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. This MarketWatch Picks guide will help you score a lower interest rates.