Whether it comes from a bank or a government program, a mortgage is essentially a loan that helps someone buy a home. Most people who live in a $350,000 house could never afford to pay that much up front, so a mortgage lets them pay it off over time, usually via monthly payments over the course of several years. Of course, lenders charge interest on mortgages just like they do with other loans, and accrued interest can dramatically increase the amount of money you owe. That’s why finding the best mortgage rates is so important.
Top Mortgage Lenders
|Lender||US States Served||Minimum Down||Key Feature|
|Citizens Bank||12||3.5%||Online Tools|
|TD Bank||16||3%||Also Offers Government Loans|
|Bank of America||50||3-5%*||Discounts for Existing Customers|
|Quicken Loans||50||3%||Flexible Terms|
|New America Funding||48||0%||No Minimum Payment|
|J.G. Wentworth||45||3%||Options for Low-Income Buyers|
|USAA Mortgage||50||0%||Great Customer Service|
|SunTrust Mortgage||46||3%||Diverse Loan Types|
|Chase||22||3%||Online Mortgage Tracking|
*3% if you qualify for its Affordable Loan Solution, but otherwise 5%.
What is a Mortgage?
As previously stated, a mortgage is a loan given to a homebuyer in order to purchase a home. Homebuyers must apply for a mortgage with a bank or government organization, and the interest rate they receive depends on a variety of factors, including their credit score. If the homebuyer is no longer able to pay his or her mortgage before the balance is settled, the lender can and will repossess the home. Mortgage payments are typically due once a month over a series of years until the balance (and accrued interest) is paid in full — or until the home is resold.
Home mortgage rates vary depending on the type of mortgage, the type of home, and the homebuyer. For example, fixed-rate mortgages are when the borrower pays a predetermined amount of interest throughout the entire duration of the loan — usually over the course of 15 or 30 years. On the other hand, adjustable-rate mortgages (ARMs) have interest rates that fluctuate with the economy. Also known as variable interest rates, these mortgages are more common in countries like Australia and Britain, but are still viable options in the United States. One type of adjustable-rate mortgage is the 5/1 ARM, which has an initial five-year fixed rate that fluctuates throughout the remainder of the mortgage.
For low-income and first-time buyers, government mortgages are a common solution. In the event of a default, the loan will be covered by the government, which helps convince lenders to provide mortgages to more homebuyers. Government mortgages include VA loans, which are provided by the Department of Veterans Affairs, and USDA loans for families in rural areas.
National Average Mortgage Rates
Current mortgage rates have fallen slightly since this time last month. That means it’s best to shop for a mortgage now, while mortgage rates are still historically low.
The average interest rate on a conventional 30-year fixed-rate home loan is 3.95%. Remember, that’s the average cost of financing a home. Savvy borrowers with decent credit can almost always pay a quarter to half of a point less.
|Type of loan||Current average||Record-low average||Established|
|30-year fixed rate||3.97%||3.50%||Dec. 5, 2012|
|15-year fixed rate||3.53%||2.75%||May 1, 2013|
|30-year fixed jumbo||3.81%||3.54%||Sept. 7, 2016|
|5/1 ARM||3.78%||2.63%||May 1, 2013|
Fixed-Rate 15-Year Mortgages vs. Fixed Rate 30-Year Mortgages
Choosing between a 15-year mortgage and a 30-year mortgage is usually a question of what you can afford. Obviously, a 15-year loan lets you pay off your loan faster, with less interest, at a lower interest rate. However, your monthly mortgage payment will be significantly higher. With a 30-year mortgage, you’ll pay a lot more money in the long run thanks to interest, but your monthly payments will be lower. If you can afford a 15-year mortgage, it’s usually the better option. Ask potential lenders for 15-year and 30-year quotes, compare the differences, and calculate what you’ll be able to pay.
5/1 ARM vs. Fixed Rate 30-Year Mortgages
A 5/1 adjustable rate mortgage has a fixed interest rate for the first five years, followed by an adjustable rate for the remaining 25 years. That makes 5/1 mortgages a little more attractive than regular ARMs, since you know your rate won’t increase for at least five years. But it’s still risky, since your rate could still skyrocket after the first five years. Of course, if you only plan to live in a home for five years or less, a 5/1 might be a good option. Meanwhile, 30-year fixed-rate mortgages won’t fluctuate at all. Bottom line, 5/1 ARMs are best suited for times when interest rates are expected to drop, or you don’t intend to stay in your home for more than five years.
10/1 ARM vs. 5/1 ARM
The 10/1 adjustable rate mortgage is just like a 5/1 ARM, but the fixed rate extends to the first 10 years instead of five. That means your interest rate will fluctuate during the final 20 years of your 30-year mortgage. A 10/1 ARM is good if interest rates are high when you buy a home (and you expect them to go down after your fixed rate expires), or if you know you’ll live in the home for less than 10 years. But if you’re confident you’ll move in less than five years, a 5/1 ARM will usually mean a better rate in the short-term.
The Best Mortgage Lenders
Citizens Bank has a great website and mobile app where borrowers can browse home listings, fill out a mortgage application with real-time co-browsing alongside your loan officer, manage your loan payments and calculate how much equity you’ve gained.
TD Bank is great for people who prefer doing business face-to-face, since it handles most of the mortgage process at brick-and-mortar branches. TD Bank is one of the only lenders that lets you make a minimum 3% down payment without mortgage insurance, and will also help connect you with government housing authorities for further assistance if you qualify for one of their mortgage rates.
Bank of America
Bank of America lets borrowers apply for mortgages online with no need to visit a physical branch. You can also apply for their closing cost and down payment programs if you need additional financial assistance. If you already have a Bank of America account, you can apply for discounts on mortgage origination fees.
Quicken Loans offers online mortgage support with a human touch, thanks to mortgage advisers who will help guide you through the process. Quicken provides FHA-backed loans, USDA loans, as well as mortgages through Fannie Mae and Freddie Mac — government programs created to make mortgages affordable for more people.
New American Funding
New American is a good option for people who only have nontraditional credit histories, such as utility and medical payments (as opposed to credit card or loan payments). You can complete a New American Funding mortgage application online, along with document uploading, loan tracking, and rate quotes. NAF also offers reverse mortgages, employs bilingual agents and offers tools to help borrowers better understand mortgage rates.
A J.G. Wentworth mortgage application, including prequalification letters, can be completed entirely online. J.G. Wentworth offers many different kinds of loans to low-income and mid-income borrowers, including fixed rate, adjustable rate, VA, FHA, HARP, USDA, jumbo, and home improvement loans. It also offers fast funding and near-instant quotes online.
USAA is known for fantastic customer service and is the best VA loan lender in the industry, since USAA only serves military personnel, veterans and their families. USAA offers online mortgage prequalification and has plenty of experience aiding first-time home buyers. Unlike many other providers, USAA doesn’t charge documentation or underwriting fees, so if you qualify for its loans, USAA is likely your best option.
The Atlanta-based bank SunTrust offers online tools and in-person customer service to mortgage loan applicants. Its preapproval process is simple, its down payments are low, and it employs plenty of Spanish-speaking agents. Best of all, SunTrust’s repayment plans are very flexible, whether you pay online, over the phone, or by check.
If you already have a Chase account, you might qualify for a discount on a Chase mortgage loan. You can also use online tracking to keep up with your application’s progress and submit any necessary documentation online. And since Chase has physical branches across the country, you’ll have the option of speaking with an agent in person if you ever need to.
The Impact of a 0.1% Change in Your Mortgage Rate
You already know that choosing the right kind of mortgage is crucial to your financial future. What may not be readily apparent, though, is how fluctuations in your mortgage rate can make a major impact. Let’s take a look at what would happen if a 30-year fixed-rate mortgage of $350,000 went up by just 0.1%.
Using our mortgage rate calculator, you can see your monthly mortgage payment would increase from $1,773 to $1,794 if your rate increased from 4.5% to 4.6%. That doesn’t seem so bad, right?
Think again! Look at the total interest you’ll accrue and pay during the life of the 30-year mortgage. That tiny 0.1% increase in your rate is the difference between $288,422 in interest payments and $295,929. And if your fixed-rate mortgage was an ARM instead, that gap could be significantly higher — tens of thousands higher. No matter what kind of mortgage you get, or which lender you choose, finding the best possible rate is key to keeping your mortgage affordable in the long run.