Homeowners and home buyers have found a silver lining among the severe economic impact of the Coronavirus pandemic as interest rates have taken a tumble. If you have a verifiable income and a good credit score, there are plenty of opportunities to improve your financial position.
With the spread of COVID-19 virtually shutting down the U. S. economy, the Federal Reserve has taken aggressive measures to bring stability and liquidity to investment markets, slashing short term interest rates down to near zero. As a result, investors have rushed to invest in safe-haven assets such as Treasury bonds, pushing interest rates down.
Rates for mortgage loans have been at their lowest levels in years, reaching a historic low of 2.65% for the week ending January 7. Many Americans are looking to take advantage of these low rates to refinance their mortgages.
Mortgage Rate Trends (APR)
|Date||30 yr FRM||15 yr FRM||5/1 ARM|
|Accurate as of 9/23/2021 | Source: Freddie Mac|
On the other hand, as social distancing restrictions have started to ease across some states, the Mortgage Bankers Association (MBA) has seen a slight but steady increase over the past four weeks in home purchase loans. As interest rates will more than likely stay near all-time lows for the time being, if you’re looking to refinance a mortgage or purchase a home, now may be the best time to do so.
The average rate for a 30-year fixed-rate mortgage was 2.88% for the week ended September 23, according to Freddie Mac. Refinancing activity made up about 66% of all mortgage loan activity, according to the MBA.
Indeed, while mortgage lenders are struggling to keep pace with the demand, more and more borrowers are considering refinancing old loans. If you’re among those thinking about taking advantage of the best mortgage rates of 2021, here are some things to consider.
You Can't Predict the Market
Since there is no way of knowing whether mortgage rates will remain low or start to increase in the coming weeks, the best you can do is make decisions based on your needs and current financial situation.
While you should be looking for favorable rates, there are other elements to keep in mind when shopping for a new mortgage, like closing costs, how long you plan to live in the home, and the age of your current loan.
When you refinance a loan you’re essentially taking out a new one. That means your initial payments will go toward the interest as opposed to the principal loan amount, and it will take some time before the monthly savings you make from refinancing offset the actual costs of refinancing.
Further, even with a new lower rate, stretching out your loan over a longer period could lead you to pay more toward interest overall, especially if you’re several years into your current mortgage.
Look Beyond the Interest Rate
One of the biggest mistakes people make when buying or refinancing a home is that they’re looking for the lowest interest rate, according to Shashank Shekhar, the chief executive of Arcus Lending. “That’s the wrong way of looking at it because somebody might have the lowest interest rates, but you may not qualify for that loan option,” says Shekhar.
So the first step should be to know what works for you. If you want a specific product like a low-down-payment option, look for a lender that offers what you need. Then, make sure that the lender is reputable, transparent, and financially stable.
Another consideration is the type of lender you choose. You can get a mortgage from a brick-and-mortar bank, a credit union or a fully online lender. If you want personal service and step-by-step guidance, go to a physical bank or credit union branch. If you’re simply looking for convenience, consider an online lender.
Remember that while online lenders do streamline the mortgage process by allowing customers to quickly upload their documents and close on their loan online, they’ll typically have the same borrower requirements as any other lender: good to excellent credit, steady income, and proof of employment.
Before you choose any mortgage lender, though, there are some things you should know about how mortgage rates are calculated and how to prepare yourself financially before you get loan estimates.
Today's 30-Year Mortgage Rates
|30 - Year Fixed Rate||700||3.252%|
|30 - Year FHA Rate||700||2.948%|
|30 - Year VA Rate||700||2.981%|
|30 - Year Fixed Rate Jumbo||700||3.371%|
|Rates as of September 23, 2021 | Source: Money.com|
How Interest Rates are Determined
Interest rates are based on a number of factors, some that you can control and others that are out of your hands. The factors you can control include your personal and loan details, such as your credit score, loan type and amount, down payment, and the type of home you’re purchasing.
Your credit score: The higher your score, the more creditworthy you are, which means there is less risk of you defaulting on your loan. Banks offer better rates to borrowers with good to excellent credit.
Your Loan Type and Amount: The type of loan you opt for — whether it’s government-backed, conforming or non-conforming, has a fixed or variable rate, etc. — will also dictate the interest rate on the loan.
Your Loan Duration: Because they pose a greater risk to lenders, loans with longer terms tend to feature higher interest rates than loans with shorter terms.
Your Down Payment Amount: It’s riskier for mortgage companies to loan you 95% of the value of your home than 80%. If the home drops in value, a loan for 80% of the home’s value provides a lot more cushion.
The Type of Home You’re Financing: If you’re financing a primary residence you’ll likely obtain a lower interest rate than if you were purchasing a vacation home.
Important Things to Know About Mortgage Rates Recap
- Your credit score is one of the most important factors in determining your mortgage rate. You can pull your credit report for free at annualcreditreport.com to check for any errors or adverse accounts before applying for a mortgage. Your credit report doesn't contain your credit score, but the information listed on it does affect your score. Generally, people with excellent credit scores of 750 or above qualify for the most competitive rates.
- Making a solid down payment can help you qualify for a better rate. There are some exceptions, but in general, if you’re able to put 20% down on a home, you can get a better interest rate. The higher your down payment, the lower the risk you pose as a borrower. Borrowers who put down less than 20% usually have to pay private mortgage insurance.
- The duration of your loan can affect the mortgage rate. For example, 15-year mortgages usually have lower interest rates than 30-year mortgages. However, keep in mind, your monthly payment will be higher with a 15-year mortgage.
- Adjustable rates sometimes have lower initial interest rates than fixed rates. However, adjustable means your interest rate can change after the initial term. So a 5/1 ARM mortgage means your rate will be fixed for five years and then can adjust each year after that. Keep this in mind when deciding which type of mortgage is right for you. Some people see the lower interest rate and choose this type of mortgage without considering what will happen if their rate increases after the initial term.
- Some lenders will let you pay points upfront for a lower interest rate. Each point is typically 1% of the amount of your mortgage. Ask your lender if they will let you pay points for a lower interest rate. This will be more money upfront but could save you in the long term.
- Some lenders offer credits. This might mean they’ll pay for some or all of your closing costs or waive other fees. However, be wary of the fact that agreeing to accept some of these credits to save you money now could mean you’ll get a higher interest rate than those who don’t use credits.
Where to Look for the Best Mortgage Rates of 2021
While rates are low across the board, consider doing business with a lender that generally offers low rates and favorable terms. Don’t limit your options to only one type of lender either, and get loan estimates from at least three different banks that offer perks like low or no down payment options, rate locks, grants for first-time homebuyers, and waived junk fees.
You should always do your own research and ask friends and family about their experience with their lenders, but if you need a place to start, consider the following banks:
- Quicken Loans: The Nation’s Top Lender by Market Share
- Veterans United: The #1 VA Loan Lender in the Country
- Citi Mortgage: Among the best for customer satisfaction
- Guild Mortgage: Has Great Perks for First-Time Homebuyers
The Best Mortgage Rates of 2021 Reviews
The following reviews take into account customer service, reputation, number of loans originated, and a variety of unique loan products.
Mortgage rates are listed when available and are valid as of the date of this review. However, interest rates are subject to change, often daily, depending on market conditions.
Quicken Loans Review
Typical mortgage Rates:
- 3.35% APR on 30-year fixed-rate mortgages
- 2.792% APR on 15-year fixed-rate mortgages
- 3.585% APR on 30-year fixed-rate FHA loans
- 3.06% APR on 30-year fixed-rate VA loans
Offers: 15 and 30-year fixed-rate mortgages, 5,7, and 10-year adjustable-rate mortgages, VA, FHA, FHA Streamline Refinance, Jumbo loans, YOURgage customizable loan
Quicken Loans is the nation’s number one mortgage lender by originations. In 2018, Quicken originated 60% of all mortgages in the U.S., that’s over $79 billion in loans. Besides being the top originator, the online non-bank lender has also taken top honors for 10 consecutive years in JD Power’s Primary Mortgage Origination Satisfaction Study.
Quicken Loans offers comprehensive learning resources and its Rocket HQ program. Rocket HQ allows users to get a free TransUnion credit report, track their VantageScore 3.0 credit score, and learn about the factors that are impacting their credit.
The company also provides an easy-to-follow loan comparison table that highlights the main differences between each of its loan types. Offerings include YOURgage, a conventional fixed-rate mortgage option that lets you choose the term of the loan, so you can adjust your monthly payments to your budget.
Veterans United Review
Typical Mortgage Rates:
- 2.804% APR on 30-year fixed VA purchase loan
- 2.922% APR on 30-year Streamline IRRRL <<
- 3.059% APR on 30-year VA cash-out
- 2.814% APR on 30-year fixed VA jumbo
- 2.922% APR on 30-year Streamline IRRRL jumbo
- 3.059% APR on 30-year VA cash-out jumbo
Offers: VA, FHA, USDA, and conventional loans.
If you qualify for a VA loan, consider applying for a mortgage with Veterans United. They are the number one VA Loan lender in the nation and have been ranked “among the best” lenders for customer satisfaction according to J.D. Power’s Primary Mortgage Origination Satisfaction Study.
For those considering a mortgage or refinance loan but hesitant about their eligibility, Veterans United offers a no-obligation credit consulting service. It’s also heavy on education resources and provides access to military advisors from each branch of the Armed Forces.
To be eligible for a VA loan, applicants must meet one of the following: have served 90 consecutive days during wartime, 181 consecutive days during peacetime, have six years of service with the National Guard or National Reserve or have a spouse who died in the line of duty or as a result of a service-related injury.
Citi Mortgage Review
Typical Mortgage Rates:
- 3.059% APR for 30-year fixed-rate loan, 1.25 points purchased
- 2.375% APR for 15-year fixed-rate loan, 0.125 points purchased
Note: Rates are based on a mortgage in Los Angeles, California
Options: Conventional fixed and adjustable-rate mortgages, FHA, VA, jumbo, and home equity loans
With a “better than most” rating from J.D. Power and 19,780 loans issued in 2018, Citi is among the nation’s top lenders based on originations as well as customer service.
As a larger industry player, the company is available in all 50 states and offers a broad selection of mortgage products, with the exception of USDA loans. Citi also has low down-payment options suitable for first-time home buyers and offers deals to new and existing customers.
Citi’s HomeRun Mortgage accepts down payments as low as 3%, doesn’t require mortgage insurance, takes into account alternative credit data for approval, and offers homeownership education and guidance. Loan amounts through this program can go as high as $548,250 or $822,375 in some high-cost areas.
While Citi doesn’t specify application or origination fees, it does state lenders tend to charge application, commitment, credit report, home appraisal, inspection, and flood certification fees, among others.
You can get pre-approved online, but you have to speak to a mortgage officer to close on your loan.
Another Option: Guild Mortgage
A great alternative for first-time buyers, Guild is also rated as “better than most” lenders in the industry by J.D. Power. It offers fixed- and adjustable-rate loans for purchase or refinance, reverse mortgages, home equity loans, jumbo loans, FHA, and VA loans.
What sets Guild apart from other lenders is that it accepts alternative credit data for approval and extends several loan programs that cater to borrowers looking for low down payment options.
Among its most attractive offers is its 3-2-1 home loan program, which lets borrowers who meet income requirements put as little as 3% down and grants them a $1,500 grant for closing costs and a $2,000 Home Depot Gift Card.
Down payment assistance may also be available for other types of loans.
How to Find the Best Mortgage Rates of 2021
When shopping around for purchase or refinance loans, looking at rates alone can only get you so far. The lenders with the best mortgage rates in the industry may not offer the product you're looking for or simply have application requirements you don't currently meet.
Start by looking at companies that offer what you need, whether that’s a specific loan type or greater convenience through a streamlined application. Once you've narrowed down your options based on what you need, look into the lender's qualification requirements and reputation.
We also recommend you look into the following:
High Customer Satisfaction Ratings
For our reviews, we focused on the top lenders based on originations as well as customer experience. These banks are big industry players that have ranked highly on J.D. Power’s Primary Mortgage Origination Satisfaction Study, which takes into account customer satisfaction with each lender’s application and approval process, communication, loan closing, and loan offerings.
Comparison tools and calculators can also help you determine how much home you can actually afford, and mobile apps can offer great convenience come time to make payments and check on your loan status.
A Good Range of Options with Low or No Fees
One of the best ways to get the lowest possible interest rate is to shop around. And while that generally means looking at what different lenders have to offer, you can also benefit from doing business with a lender that has a diverse selection of loans to choose from.
Finally, don’t forget to factor in fees. Some lenders are very transparent about the fees they charge, clearly stating them on their websites for the benefit of prospective borrowers. Others, however, are not as straightforward, only stating fees may be applicable and can vary.
While this isn’t necessarily a deal-breaker, we recommend you work with lenders that waive fees like document preparation, funding, and employment verification fees. Some fees, like those for title search and flood risk reports, are reasonable, but these should be explained in your closing disclosure. Go over these with your mortgage officer before closing on your loan.
Choose the Best Mortgage Rates for Your Personal Financial Situation
The advice of experts is to base your home purchase on your current financial situation. While mortgage rates are low and tempting, don’t rush into anything thinking this is your only chance to snag a good rate.
There are other considerations to keep in mind, like your job security and ability to make mortgage payments for the foreseeable future. If you’re looking to refinance your mortgage, consider how far you are into your current mortgage and how long it will take for you to recoup the costs of refinancing.