Today’s 20-Year Fixed Mortgage Rates | Mortgages

U.S. News Expert Insights

“Mortgage rates remained high this week ahead of the Federal Open Market Committee meeting, which concludes with a rate-setting decision on June 12. Federal Reserve officials are almost certainly poised to hold rates at their current levels, where they’ve been for nearly a year.

“Most economists believe that the Fed will begin cutting the benchmark rate in September at the earliest, as long as policymakers continue to see proof that inflation is progressing closer to the central bank’s 2% annual target. Although price growth has subsided on a monthly basis, inflation rose 3.4% year over year in April.

“In the meantime, mortgage rates are unlikely to rise or fall dramatically. The average 30-year mortgage rate is sitting at around 7%, and it will stay higher for longer until Fed officials feel comfortable enough to implement rate cuts. In other words, those who are waiting for rates to fall in order to buy a home will be on the sidelines for a while longer.”

– Erika Giovanetti, U.S. News Loans Expert

A fixed-rate mortgage is a home loan with an interest rate that doesn’t change. Unlike an adjustable-rate mortgage, a fixed-rate mortgage means your interest rate – and ultimately your monthly payment – will remain the same throughout the life of the loan. Your interest rate is determined when you take out the loan.

A 20-year fixed mortgage means you have 20 years to pay off your loan. The longer the length of the loan, the less your monthly payment will be, but the more interest you’ll pay over the length of the loan.

For example, if you purchased a home for $300,000, put 20% down ($60,000) and received an interest rate of 7%, your monthly principal and interest payment on a 20-year fixed rate loan would be $1,861 and cost $206,572 in interest over the life of the loan. Using those same numbers, your monthly principal and interest payment on a 30-year fixed rate loan would be $1,597 and you would pay $334,821 in total interest.

While your monthly payment with a 20-year fixed mortgage would be $264 more each month, you would save $128,249 in interest payments.

An additional benefit of a mortgage with a shorter term is that you may be offered a lower interest rate for a shorter repayment period. So, if the interest rate on a 30-year fixed rate mortgage is 7%, the interest rate on a 20-year fixed rate mortgage may be 6.50%.

Refinancing is replacing your current home loan with a new mortgage that ideally has a lower interest rate. Refinancing a 30-year fixed-rate mortgage into a 20-year fixed-rate mortgage may make your monthly payments go up, but you’ll pay less in interest over the length of the loan.

Using the same example as above, say you purchased a home for $300,000, put 20% down and got a 7% interest rate on a 30-year mortgage. Five years into the loan, you consider refinancing into a 20-year mortgage. Answer these questions to figure out if you would save money:

Keep in mind this example is using the same interest rate for the new mortgage as the original mortgage. In reality, one of the reasons you’ll likely have refinanced in the first place is because interest rates have dropped. If your refinanced mortgage has a lower interest rate than your original, that means you’ll pay even less interest over the length of the loan.

To find the right mortgage lender for you, first consider what type of lender you’re looking for. Decide if it’s important for you to have a brick-and-mortar location to walk into, or if you’re happy with an online bank with only a virtual presence. Ask yourself if you want a smaller, community bank, a large national bank or a credit union. All these options offer unique pros and cons and which one you choose is your personal preference.

Once you’ve decided which type of lender is best for you, research mortgage lenders in your area. Contact lenders that align with your needs and ask them for a list of current interest rates for their available mortgage loans and whether the rates being quoted are the lowest for that day or week and what fees they typically charge for each mortgage product. In most cases, you’ll be able to get preapproved for a mortgage to see your possible interest rate without the lender doing a hard credit check.

Although a fixed-rate mortgage is the most common type, you may also want to consider an adjustable-rate mortgage. An adjustable-rate mortgage is a type of home loan with an interest rate that can change over time. Typically, these mortgages will have a lower initial fixed interest rate for a set period of time – usually five, seven or 10 years – then the interest rate will go up.

Adjustable-rate mortgages can be beneficial when interest rates are high. For example, if you qualify for a 20-year fixed-rate mortgage with a 7% interest rate, you may be able to get an adjustable-rate mortgage that has an interest rate of 5% for the first five years. If you plan on selling your home or refinancing before the fixed-rate period ends, an adjustable-rate mortgage could be a good option. Be careful though, you may see a sharp increase in your monthly payment if you retain the loan past the fixed-rate period.

For borrowers who want a smaller down payment or for those with lower credit scores, consider getting an FHA loan. FHA loans are loans from private lenders that are insured and regulated by the Federal Housing Administration. FHA loans tend to be more expensive for those with good credit who make medium down payments (10-15%), but the cheapest option for those with lesser credit or when making a small down payment.

The U.S. Department of Veterans Affairs offers VA loans to service members, veterans and their families. VA loans provide the ability to buy a home with no down payment and no private mortgage insurance. VA loans can also help limit closing costs and give you the ability to repay your mortgage without a penalty, but may come with a higher interest rate than a conventional loan.

If you qualify for a 10- or 15-year fixed-rate mortgage, remember that your monthly payments will be higher, but you’ll pay less interest over the length of the loan and your interest rate may be lower. If you qualify for a 30-year fixed-rate mortgage, your monthly payments will be lower but you’ll pay more in interest over the length of the loan.