Current Mortgage and Refinance Rates for January 2020

What are today's mortgage rates?

On January 21, 2020, according to Bankrate’s latest survey of the nation’s largest mortgage lenders, the benchmark 30-year fixed mortgage rate is 3.780 percent with an APR of 3.920 percent. The average 15-year fixed mortgage rate is 3.230 percent with an APR of 3.410 percent. The 5/1 adjustable-rate mortgage (ARM) rate is 3.430 percent with an APR of 4.120 percent.

The Federal Reserve and mortgage rates

The Federal Reserve’s interest rate decisions don’t directly impact mortgage rates. Long-term rates, such as 30-year fixed-rate mortgages, are more closely tied to the 10-year Treasury yield.

There’s little correlation between the Fed’s rate decisions and mortgage rates. For example, when the Fed raised rates four times in 2018, mortgage rates decreased in the latter part of the year.

However, the Fed and Treasury yields are loosely influenced by similar market forces. “While not directly related to a Fed cut, the two are sort of a reflection of the same concern: the expectation that the economy is going to slow,” says Greg McBride, CFA, Bankrate chief financial analyst.”

If you’re concerned mortgage rates will rise in the future, considering locking in your rate.

How are mortgage interest rates determined?

Mortgage interest rates are largely influenced by economic factors, such as inflation, economic growth indicators, Federal Reserve policies, the housing market and the bond market. Consumers, in many ways, have little to do with the average interest rates lenders offer.

However, borrowers can improve their chances of getting the best mortgage rate available by working toward an excellent credit score, making sure income is well-documented and keeping debt-to-income ratios low.

Borrowers with excellent credit scores will get the best rates. You can boost your credit score by lowering the amount of debt you have, making sure your accounts are in good standing and paying your monthly bills on time.

What you need to know about mortgages

What is a mortgage?

A mortgage is another word for a home loan. When you get a mortgage, your lender uses the property as collateral. The lender will take a lien on the property’s title until you repay the debt, at which point they will release their hold on the title. Mortgage lenders primarily make their money through interest on the loan. The amount of interest charged is commensurate with the risk the lender takes. For example, people with a larger down payment usually qualify for a lower interest rate since the lender is fronting less of the total value of the house.

How does a mortgage work?

In a mortgage agreement, a borrower agrees to a set length of time to repay the money, at a certain interest rate and under specific terms, and makes payments in equal monthly installments.

In a typical mortgage, the lender gives the homebuyer 30 years to pay back the loan, but there are mortgages with shorter and longer terms. Homebuyers who want to reduce the amount of interest they pay over the life of their loan can make extra payments each year or put more money (above their minimum mortgage payment) toward their principal each month.

What is the difference between APR and interest rate?

The annual percentage rate, or APR, includes the interest rate and other borrowing costs, such as mortgage insurance and other loan fees, and is expressed as a percentage. It gives you a better overall idea of the loan’s true borrowing costs. The interest rate is a fee a lender charges you to borrow the principal loan amount. It can be variable or fixed, but it’s always expressed as an annual percentage rate.

When you’re shopping for lenders, make sure you get the APR as well as the interest rate. You can ask lenders for a rate sheet, which should break down all the mortgage fees. Costs differ among lenders, so getting a low interest rate and a low APR is a win-win for borrowers. When in doubt, it’s best to go with the APR as a more complete picture of the cost of the loan.

What are the different types of mortgages?

There are three main types of mortgages: conventional, government-insured, and jumbo loans, also known as non-conforming mortgages.

Conventional mortgages

Fixed-rate mortgages - A fixed-rate mortgage has an interest rate that doesn’t change throughout the life of the loan. In that way, borrowers are not exposed to rate fluctuations. For example, if you have a fixed-rate mortgage with a 4.5 percent interest rate and prevailing rates shoot up to 6 percent the next week, year or decade, your interest rate is locked in, so you don’t ever have to worry about paying more. Of course if rates fall, you’ll be stuck with your higher rate. Keep in mind, fixed-rate only refers to the rates, but there are many types of fixed-rate mortgages, such as 15-year fixed rate, jumbo fixed-rate and 30-year fixed rate mortgages.

Adjustable-rate mortgages - Adjustable-rate mortgages, or ARMs, have an initial fixed-rate period during which the interest rate doesn't change, followed by a longer period during which the rate may change at preset intervals. Unlike a fixed-rate mortgage, ARMs are affected by market fluctuations. So if rates drop, your mortgage payments will drop. However, the reverse is also true — when rates rise, your monthly payments will also rise. Generally, interest rates are lower to start than with fixed-rate mortgages, but since they’re not locked in to a set rate, you won't be able to predict future monthly payments. ARMs come with an interest rate cap above which your loan can not rise.

Government-insured mortgages

FHA loans, VA loans, USDA loans - Government-insured or government-backed loans are backed by three agencies: the Federal Housing Administration (FHA loans), the U.S. Department of Agriculture (USDA loans) and the first-time homebuyers as well as folks who have a lower down payment or smaller budget as the requirements are usually looser than mortgages not secured by the government, these are known as conventional mortgages.

Non-conforming mortgages

Jumbo mortgages - Jumbo mortgages are conventional loans that have non-conforming loan limits. This means the home prices exceed federal loan limits. For 2020, the maximum conforming loan limit for single-family homes in most of the U.S. is $510,400, according to the Federal Housing Finance Agency. Jumbo loans are more common in higher-cost areas and generally require more in-depth documentation to qualify.

How long do you repay a mortgage?

Mortgages come in various repayment terms, including fixed-rate loans of 10, 15, 20, 30 or 40 years. Another option is an adjustable-rate mortgage, or ARM, which has an initial, fixed-rate interest period of three, five, seven or 10 years. After the initial time frame, an ARM resets and interest rates can go up or down for the remaining life of the loan. ARMs come in various terms, with the 30-year being the most popular.

Mortgages with shorter terms usually have lower interest rates and larger monthly payments. By choosing a mortgage with shorter terms, you’ll slash the amount of interest you pay over the life of your loan. For example, on a $250,000 mortgage with a 4 percent interest rate, here’s the total interest borrowers will pay depending on their terms:

• 15-year mortgage: $82,860
• 30-year mortgage: $179,673

At the same time, those with 15-year mortgages would pay $1,849.22 per month and those with 30-year mortgages would pay $640 per month, or $1,193.54. It’s up to the homebuyer to make a budget that fits their cash flow. For some, investing that extra money would likely provide a larger return than putting it toward a mortgage with a low interest rate, whereas others might want to be free of debt faster and expand cash flow.

What is the best mortgage loan type for me?

The mortgage you choose depends on a variety of factors, including your credit history and score, debt-to-income ratio, down payment amount and employment history. It also depends on how long you play to stay in the home, what type of property you’re interested in, and if you meet the lender’s borrowing requirements.

Narrowing your loan choices can be difficult. Here’s a list of pros and cons of each of the options mentioned earlier to help you decide.

Whether it's a conventional, FHA, or VA loan, find out which mortgage is the best for you.

When is the right time to get a mortgage?

This varies by each individual. How much of a down payment do you have saved? Are you ready to stay in one place for a number of years? Can you take on and afford the expenses of homeownership, from the fixed monthly costs to the unexpected like suddenly needing a new HVAC system?

The first step in getting a mortgage is to get preapproved, and it’s best to do this before you start looking at homes. A preapproval might reveal you need to work on credit issues or pay down debt, so it’s best to speak to a lender as early as possible to identify -- and resolve -- potential obstacles.

How much can I borrow for a mortgage?

The maximum loan amount will vary depending on your income, the type of mortgage you choose, federal loan limits and the specific down payment requirements for the type of mortgage you want. For example, VA and USDA loans allow you to finance 100 percent of the home’s purchase price, while FHA loans require 3.5 percent down and conventional loans require at least 3 percent down.

How do I find the best mortgage rate?

To find the best mortgage rate, shop around with at least three different lenders to compare products and rates. The more you shop for rates, the better the odds you’ll get the best one. Don’t limit yourself geographically either--a lender in a far-off state who operates over the internet may be able to give you a better deal than your neighborhood bank.

Typically, the higher your credit score and the less debt you have as a percentage of your income, the more competitive the interest rates lenders can offer.

How do I choose a mortgage lender?

Bankrate’s dynamic mortgage rate tables allow you to browse for rates in a couple ways. First, you can input your data, such as zip code, mortgage amount, credit score and loan type (mortgage or refinance), to get customized results that closely match your profile. Or you can simply look at all the lender rates without including any personal data.

Each lender profile includes important consumer information such as customer reviews, as well as interest rates, APR and upfront costs. You can select a few lenders you like to get a side-by-side comparison. You’ll also be able to get basic lender information, including contacts and their history, by clicking on their name.

Before you choose a lender, make sure you understand all of their upfront costs. This is a personal decision buyers should make after careful consideration. Keep in mind that some of these costs may be negotiable.

Already own a home and want to refinance?

Refinancing your mortgage can be a good financial move if you lock in a lower rate. However, there are upfront costs associated with refinancing, such as appraisals, underwriting fees and taxes, so you’ll want to be sure the savings outpace the refinance price tag in a reasonable amount of time, say 18 to 24 months.

Learn more about refinance rates here.

Not ready for a mortgage? The following tools, tips, and content can help you get there.