Current mortgage and refinance rates for September 2020

Current Jumbo Mortgage Rates

Rates as of Tuesday, September 29, 2020 at 6:30 AM

Current Government Loan Rates

Rates as of Tuesday, September 29, 2020 at 6:30 AM

Surprise announcement will make mortgage refinancing more expensive

Refinancing your mortgage will soon get more expensive. In a surprise announcement in mid-August, mortgage giants Fannie Mae and Freddie Mac announced they would add a 0.5 percent fee on all refinancings that close after Dec. 1 and after.

Consumer advocates and the lending industry decried the additional cost.

“The irony is striking – the Federal Reserve is effectively printing money to buy government guaranteed mortgage backed securities in order to keep markets functioning, drive down mortgage rates, facilitate refinancing, and put monthly savings into consumers’ pockets,” says Greg McBride, CFA, Bankrate chief financial analyst. “And now FHFA wants to grab that savings from the consumer and put it into Fannie and Freddie’s coffers.”

Take this new fee into consideration when finding your break-even point on a refinance. That’s the point when you recoup the costs from refinancing and start saving. The fee won’t apply to mortgages below $125,000.

You may be able to skip this fee if you work with a lender that holds the loans it originates in its own portfolio. All jumbo loans fall into this category, for example, and would avoid the new fee.

What you should know about the biggest national banks

In addition to comparing mortgage rates, you can compare lenders to find a match for your needs and preferences, such as the ability to apply for a loan online, the availability of certain loan products and terms, and whether there are fees or opportunities to save. To help you know your options, below, Bankrate has listed the biggest large-bank lenders in the U.S., based on originations in 2019, and important information about each. Keep in mind that in addition to banks, you can find mortgage offers from credit unions and independent institutions, as well.

Wells Fargo

Overview: Wells Fargo Home Mortgage, a division of Wells Fargo, is one of the largest lenders in the U.S. As a full-service lender headquartered in San Francisco, California, it offers a wide range of mortgage options. Homebuyers can find conventional, FHA, VA, USDA, jumbo, fixed-rate and adjustable-rate (ARM) mortgages. Refinance and home equity opportunities are available as well.

Mortgages from Wells Fargo are available in all 50 states; however, it doesn't have branch locations in Hawaii, Indiana, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Missouri, New Hampshire, Ohio, Oklahoma, Vermont or West Virginia. The application process can be started online or via phone.

What to know:

• Wells Fargo Home Mortgage is a large, full-service lender originating loans nationwide.
• The bank has online application submission and tracking.
• The bank offers a broad range of loan types, including refinance and home equity loans, as well as first-time homebuyer loan programs and education.
• The bank accepts down payments as low as 3 percent on fixed-rate mortgages.

Keep in mind:

• Branch access isn’t available in 13 states, although loans are available.
• The bank doesn't offer a completely online process — you must speak with a mortgage representative.

JPMorgan Chase Bank

Overview: As one of the biggest players in the mortgage industry, Chase Home Lending — a division of JPMorgan Chase — is a full-service lender headquartered in New York.

Chase offers a broad selection of homebuying programs, including conventional, FHA, VA and jumbo loans with fixed and adjustable-rate (ARM) options. It also offers rate-and-term refinancing, cash-out refinancing and home equity lines of credit. Loans are available in all 50 states.

One standout feature the lender offers is the Chase Closing Guarantee, which is a program that guarantees an on-time closing (as soon as three weeks after submitting documents) for current customers buying a new home. If the lender isn’t able to close on time, borrowers receive $2,500 cash back. Borrowers can prequalify for a loan online, in person at a branch or over the phone.

What to know:

• JPMorgan Chase Bank is a large, full-service lender originating loans nationwide.
• Borrowers can submit and track documents online.
• The bank offers a broad range of loan types, including refinancing and home equity loans.
• The bank features an on-time closing guarantee.

Keep in mind:

• The bank doesn’t offer brick-and-mortar locations in every state.
• The bank charges rate lock, origination and underwriting fees.
• The bank doesn't offer a completely online process — you must speak with a mortgage representative.

Bank of America

Overview: Bank of America originates loans in all 50 states. The Charlotte, North Carolina-based lender is one of largest in the U.S. and offers conventional, FHA, VA, jumbo, low-down payment, fixed-rate and adjustable-rate (ARM) loans. It also offers rate-and-term and cash-out refinance options. Home equity lines of credit are available as well.

Borrowers can apply entirely online, via phone or in person at a branch. Lending specialists are available to answer borrower questions at any time during the process.

What to know:

• Bank of America provides an entirely online mortgage process.
• The bank offers low-down payment options and guidance for first-time homebuyers.
• Current customers may qualify for an origination fee reduction of $200 to $600.
• The bank features transparent interest rates for various mortgage products on its website.

Keep in mind:

• The bank charges origination fees and other closing costs.
• The bank doesn't offer USDA or renovation loans.
• Origination fee discounts are only available to Bank of America Preferred Rewards clients.

U.S. Bank

Overview: U.S. Bank is the fifth-largest bank in the nation and also one of the biggest originators of mortgage loans. Based out of Minneapolis, Minnesota, U.S. Bank provides home loans to borrowers in all 50 states, with a large selection of loan products. Borrowers can choose from fixed- and adjustable-rate financing on conventional, FHA, VA, jumbo, investment property and new construction and lot loans.

U.S. Bank also offers traditional, cash-out and streamline refinance options, as well as home equity loans and home equity lines of credit (HELOCs). Borrowers can prequalify and apply completely online, by phone or in person at a branch.

What to know:

• U.S. Bank is a large, full-service lender originating loans nationwide.
• The bank allows borrowers to apply completely online.
• The bank offers an extensive range of mortgage, refinance and home equity products.

Keep in mind:

• The bank doesn’t offer personalized rates online.
• Loan officers are only available in 40 states.
• The bank may charge closing costs on home loans.

Flagstar Bank

Overview: Based out of Troy, Michigan, Flagstar Bank is a subsidiary of Flagstar Bancorp. This large full-service lender offers a broad selection of purchase, refinance and home equity options to borrowers nationwide. The bank's mortgage division operates online and through 88 home loan centers in 27 states.

Home loan options available through Flagstar include fixed-rate, adjustable-rate, conventional, FHA, VA, USDA, HFA, jumbo, high balance and multiple property loans. It also provides refinance and home equity loans. Borrowers can start their application online, in person at a branch or by phone.

What to know:

• Flagstar Bank is a large, full-service lender originating loans nationwide.
• The bank allows borrowers to apply online, as well as track and manage payments online.
• The bank offers a wide range of loan options, including refinance and home equity loans.

Keep in mind:

• The bank only has branches in certain states.
• The bank may charge closing costs between 2 percent and 5 percent of the purchase price.
• The bank doesn't offer a completely online process — you must speak with a mortgage representative.

Bankrate's guide to mortgages

By Jeff Ostrowski

What is a mortgage?

A mortgage is a type of loan designed for buying a home. Mortgage loans allow buyers to break up their payments over a set number of years, paying an agreed amount of interest. Mortgages are also legal documents that allow the home seller to claim the property if the buyer doesn’t make their payments. It also protects the buyer by forbidding the seller from taking the property while regular payments are being made. In this way, mortgages protect both the seller and the buyer.

How does a mortgage work?

A mortgage is a home loan that uses your house as collateral. There are many types of mortgages, from government-backed loans designed for people who meet certain criteria like veterans (VA loans) or first-time homebuyers (FHA loans) to privately-owned loans.

The repayment options also vary. The most common mortgage requires the borrower to pay it back over 30 years, but there are also 20- and 15-year mortgages.

Mortgages also come with interest. There are two ways people can deal with interest: fixed-rate and adjustable-rate mortgages. Fixed-rate mortgages lock in the interest rate you qualify for so it never changes over the life of your loan. Adjustable-rate mortgages start with one rate but may move up or down at set intervals as interest rates change. So in a rising-rate environment, your interest rate will also rise.

What is the difference between APR and interest rate?

The difference between APR and interest rate is that the APR (annual percentage rate) is the total cost of the loan including interest rate and all fees. The interest rate is just the amount of interest the lender will charge you for the loan, not including any of the administrative costs. The APR is a more accurate picture of how much the loan will cost you.

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 U.S. Department of Veterans Affairs (VA loans). The U.S. government isn’t a mortgage lender, but it sets the basic guidelines for each loan type offered through private lenders. Government-backed loans can be good options for 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?

Mortgage terms, or how long you have to repay a mortgage, varies. The most common term is a 30-year mortgage, which allows borrowers to pay over 30 years. Of course, borrowers can have a 30-year mortgage and pay it off faster (which will reduce the total amount of interest you pay), but they’re not obligated to.

There are also 20- and 15-year mortgages. Typically, mortgages with shorter terms also have lower interest rates. So while you’ll end up paying more each month with a 15-year mortgage because you are putting more towards principal, the total of your payments will be much less than if you spread it out over 30 years.

What is the best mortgage loan type for me?

The best mortgage type depends on your budget and financial goals. Some people want lower monthly payments, even if that means paying more in interest over the life of the loan; in that case, a 30-year mortgage is likely the best option. Whereas others might be able to afford bigger monthly payments and want to minimize the amount of interest they pay, which would make the 15-year mortgage a better choice.

As far as interest rates, a fixed-rate is usually the best choice for folks who plan on staying in their home longer than a few years. Because adjustable-rate mortgages (or ARMs) usually have a lower interest rate to begin with, people who are going to sell their house within a couple years (or before they expose themselves to higher interest rates) might choose that option.

Pros and cons of different loan types

There are so many different loan types, each designed for different purposes. Some loans are ideal for first-time homebuyers with a small down payment and mediocre credit score (like FHA loans), but they also come with more restrictions than conventional mortgages. Whatever loan you choose, be sure to weigh the pros and cons -- it’s different for every homebuyer.

How much can I borrow for a mortgage?

The amount you can borrow depends on a variety of factors, including how much you’re qualified for (depending on your income, among other factors) as well as what type of loan you have. Conforming mortgages have limits while jumbo loans allow borrowers to exceed the conforming limits.

Coronavirus hurts housing affordability

By taking money out of Americans’ paychecks and creating a housing shortage, the coronavirus delivered a blow to housing affordability.

The National Association of Home Builders (NAHB) estimates that median family income for 2020 will fall to $72,900 from $75,500 in 2019. “You have a sudden stop for the economy, which means for a lot of buyers, their budget available to buy a home has drastically changed,” says Robert Dietz, NAHB's chief economist.

As a result of that pay cut, it’s getting harder for Americans to buy homes. Some 59.6 percent of homes sold during the first quarter were affordable to families earning a typical income during April, May and June, down from 61.3 percent in the first quarter of 2020 and 63.2 percent in the fourth quarter of 2019, according to the NAHB/Wells Fargo Housing Opportunity Index.

How to find affordable housing during a pandemic

There’s no real secret to finding a deal on a home, especially given today’s combination of record-low mortgage rates and super-tight inventories.

One possibility: Move to a cheaper area. In recent years, homeowners have moved out of pricey housing markets, particularly California and New York. The exodus of Californians has driven up prices in Idaho, Oregon and Nevada, while New Yorkers have snapped up homes in Florida. Entrepreneur Nick Huber decided to leave Boston and its high housing prices; he moved his family to Athens, Georgia. Moving cross-country isn’t an option for everyone, but it’s getting easier as more workers shift to remote work during the coronavirus pandemic.

One caveat: Comparatively cheap markets tend not to stay cheap. A Bankrate examination of home value trends found prices soaring in some markets adjacent to unaffordable areas. For instance, Oakland prices have surged as San Francisco workers look for cheaper alternatives. Similar patterns played out in Modesto, California, and Port St. Lucie, Florida.

5 most affordable metro areas

Home prices and incomes vary widely, and there are oases of affordability, mainly in the Rust Belt and Midwest. The top five most affordable among metro areas with population of 500,000 or more:

• Scranton-Wilkes Barre-Hazleton, Pennsylvania: Wages here are below national levels, but so are home prices -- the median sale price was just $120,000 in the second quarter of 2020. As a result of rock-bottom prices, fully 89 percent of all new and existing homes sold in the spring quarter were affordable to families earning the area’s median income of $66,600, NAHB says. The median price jumped from $113,000 in the first quarter.
• Harrisburg-Carlisle, Pennsylvania: With a median family income of $79,000 and a median home price of $170,000, fully 87.6 percent of homes were in reach of median-income families.
• Pittsburgh: This metro area has a median family income of $77,100 and a median home price of just $155,000. As a result, 87.3 percent of homes were affordable for typical earners.
• St. Louis: The average median income of $77,000 meant the median-priced home of $165,000 fell within the budgets of 86.9 percent of buyers.
• Wilmington, Delaware: This region's above-average median income of $84,200 made the median-priced home of $228,000 affordable to 86.8 percent of buyers.

5 least affordable areas

At the opposite end of the affordability spectrum, California dominates. The nation’s least affordable markets:

• San Francisco-Redwood City-South San Francisco: Incomes are high here -- the median is $129,200. Prices are even higher -- the typical home went for $1.4 million in the second quarter. That translates to just 8.5 percent of homes sold during the second quarter falling in the range of affordability for families earning the area’s median income.
• Los Angeles-Long-Beach-Glendale: In a market with a median home price of $640,000, LA’s median income of just $70,600 doesn’t go far. As a result, only 10.8 percent of homes were affordable for typical families.
• Anaheim-Santa Ana-Irvine: Orange County’s incomes are high: The typical family makes $94,600 this year. But home prices are higher, at a median of $760,000. That means just 13.4 percent of homes are in reach for average families.
• San Jose: Silicon Valley’s median family income is a healthy $131,500, but the typical home sold for $1.1 million. That meant 16.2 percent of homes sold were affordable.
• San Diego-Carlsbad: San Diego has a median family income of $86,100 and a median home price of $594,000, translating to just 20.1 percent of homes falling in the typical buyer’s budget.

Finding the best rate

How do I find the best mortgage rate?

The first step in getting the best mortgage rate is to decide what type of mortgage best suits your goals and budget. Typically, 15-year mortgages have lower rates but larger monthly payments than the more popular 30-year mortgage. Similarly, adjustable rate mortgages usually have lower rates to begin with, but the downside is that you’re not locked into that rate, so it can rise.

Once you’ve determined what type of loan works for you, then you should shop around. With so many lenders to choose from, borrowers should comparison shop to get the best rate. Be sure to look at the APR, not just the interest rate. The APR is the total cost of the loan (which includes the interest rate and other fees). Some lenders might have the same interest rate but different APRs, which means you’ll be charged more in fees.

When is the right time to get a mortgage?

The right time to get a mortgage is when your budget allows for it. Some people wonder if waiting for rates to drop is a good idea, but experts say it’s not. Because there are a variety of factors that influence mortgage rates, there’s no way to accurately predict if rates will rise or fall.

How do I find personalized mortgage rates?

The only way to get a personalized mortgage rate is to apply for a mortgage. The good news is that most lenders don’t charge application fees and applying with multiple lenders (to see who offers the best rate) won’t negatively affect your credit score.

Lenders consider your credit score, income, debt-to-income ratio and sometimes assets when determining what mortgage rate you’ll get. Lenders give high-risk borrowers (those with low credit scores, high debt-to-income ratio) higher interest rates to offset their exposure and vice versa, those with a strong credit profile get lower mortgage rates.

How do I choose a mortgage lender?

Mortgage lenders come in all shapes and sizes, from online companies to old-fashioned brick-and-mortar banks — and some are a mix of both. Decide what type of service and access you want from a lender and balance that with how competitive their rates are. You might decide that getting the lowest rate is the most important feature for you, while others might go with a slightly higher rate because they can apply in-person, for example.

Some banks offer discounts to existing customers, so you might be able to save money by getting a loan at the same place where your savings or checking account is.

Which banks have the best mortgage rates?

Mortgage rates can change by lender every day, which means there’s no one lender that always has the best rates. Keep in mind that rates also differ by the borrower. So, the same lender might charge Borrower A 3.25 percent and Borrower B 4.25 percent. The reason for the drastic difference is their credit profile. Lenders reward high credit scores and low debt-to-income ratios with low mortgage rates because there’s less risk of defaulting on the loan. As credit tightens, some lenders will only lend to people with stronger credit profiles.

Other Frequently Asked Questions

How does the Federal Reserve affect mortgage rates?

Variable rates usually move in the same direction as the federal funds rate, so adjustable-rate mortgages would be affected. The federal funds rate, however, doesn’t directly affect long-term rates, which include financial products like 30-year fixed-rate mortgages; those tend to move with the 10-year Treasury yield.

What is a discount point?

Discount points help home buyers to reduce their monthly mortgage payments and interest rates. A discount point is most often paid before the start of the loan period, usually during the closing process. It is a type of prepaid interest made on the loan.

The cost of a point depends on the value of the borrowed money, but it is generally 1 percent of the total amount borrowed to buy the home. You can read more about discount points here.

What is a mortgage rate lock?

A mortgage rate lock freezes the interest rate. The lender guarantees (with a few exceptions) that the mortgage rate offered to a borrower will remain available to that borrower for a stated period of time. With a lock, the borrower doesn’t have to worry if rates go up between the time they submit an offer and close on the home.

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.