Today's best mortgage and refinance rates: Wednesday, January 13, 2021

Most mortgage and refinance rates have dropped since last Wednesday. The 10/1 ARM rates have increased slightly, though.

Both mortgage and refinance rates are at historic lows. If you're ready to apply for a mortgage, you may want to choose a fixed-rate mortgage over an adjustable-rate mortgage right now.

Mat Ishbia, CEO of United Wholesale Mortgage, told Business Insider there isn't much of a reason to choose an ARM over a fixed rate these days.

ARM rates used to start lower than fixed rates for the first few years, and there was a chance your rate could decrease later. But fixed rates are lower than adjustable rates right now, so you probably want to lock in a low rate while you can.

Mortgage rates on Wednesday, January 13, 2021

Rates from Ad Practitioners LLC.

Mortgage rates have decreased since last Wednesday, with the exception of 10/1 adjustable rates, which have increased by just one basis point.

Note that these are the national average rates for conventional mortgages, which are what you probably think of as "regular mortgages." Rates may be different for government-backed mortgages through the FHA, VA, or USDA.

In general, mortgage rates are at all-time lows. Low rates are typically a sign of a struggling economy. Mortgage rates will probably stay low as the US continues to grapple with the COVID-19 pandemic.

Refinance rates on Wednesday, January 13, 2021

Rates from Ad Practitioners LLC.

The 15-year fixed refinance rates, 30-year fixed rates, and 7/1 adjustable rates are down since last Wednesday. The 10/1 ARM rates are up by six basis points.

15-year fixed-rate mortgages

With a 15-year fixed term, you'll pay down your mortgage over 15 years, and your rate stays the same the entire time.

Rates on 15-year mortgages are lower than on longer terms. Between these low rates and paying off your mortgage relatively quickly, it's much more affordable overall to get a 15-year mortgage than a 30-year mortgage.

However, your monthly payments will be higher on a 15-year term than on a longer term. You're cramming the same mortgage principal into a shorter chunk of time, so you'll pay more each month.

30-year fixed-rate mortgages

A 30-year fixed-rate mortgage is similar to a 15-year mortgage, except you'll pay off the mortgage over 30 years.

You'll pay a higher interest rate on a 30-year fixed mortgage than on 15-year mortgages. For a long time, you'd also pay a higher rate on a 30-year fixed loan than on an ARM. But right now, 30-year fixed rates the better deal.

Monthly payments are lower for 30-year terms than for shorter terms, because you're spreading payments out over a longer period of time.

You'll pay more in interest in the long term with a 30-year term than you would for a shorter term, because a) the rate is higher, and b) you'll be paying interest for longer.

Adjustable-rate mortgages

With an adjustable-rate mortgage, your rate stays the same for the first few years, then changes periodically. 

For example, a 7/1 ARM locks in your rate for the first seven years, then alters it once per year. Similarly, a 10/1 ARM keeps your rate the same for the first 10 years, then it fluctuates annually.

ARM rates are at all-time lows right now, but a fixed-rate mortgage is still the better deal. The 30-year fixed rates are comparable to or lower than ARM rates. It could be in your best interest to lock in a low rate with a 30-year or 15-year fixed-rate mortgage rather than risk your rate increasing later with an ARM.

If you're considering an ARM, you should still ask your lender about what your individual rates would be if you chose a fixed-rate versus adjustable-rate mortgage.

Tips for getting a great mortgage rate

It could be a good day to apply for a mortgage if your finances are in a good place — but you don't necessarily have to hurry. Rates will probably stay low well into 2021, if not longer.

To get the best rate possible, consider taking some of the following steps before submitting an application:

• Improve your credit score by paying down high-interest debt and making payments on time. Your score could also increase if you let your credit age.
• Save for a down payment. You don't necessarily need a 20% down payment to get a good rate, but the more you save, the better your rate will likely be. If you don't have much for a down payment right now, you might consider waiting so you can save more.
• Lower your debt-to-income ratio. Your debt-to-income ratio is the amount you pay toward debts each month, divided by your gross monthly income. Lenders want to see a debt-to-income ratio of 36% or less. Consider paying down some debts, such as credit cards or a car loan, to get a lower ratio.

If you have a strong financial profile, it could be a good day to lock in a mortgage rate. But if not, you probably have time to improve your finances.

Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.

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