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Top questions to ask about low mortgage rates

Posted on Monday, February 22, 2016 at 2:09:22 PM

It wasn't so long ago that housing experts were warning of rocketing mortgage rates and affordability concerns. Actually, it was just mid-December, when the Federal Reserve decided to raise the benchmark interest rates. Since then, however, mortgage rates have done nothing but defy all expectations. Rather than climb, they have only fallen.  

In fact, according to Freddie Mac's Feb. 18 Primary Mortgage Market Survey, the 30-year fixed-rate mortgage is now averaging 3.65 percent. That is just above 2015's low mark of 3.59 percent. In other words, it's a great time for homebuyers to take advantage of residential financing. 

But where to start? Purchasing a home is one of life's biggest financial commitments. It should not be done without having a clear idea of the mortgage process. To help you along the way, we have answered some of the key questions borrowers have about obtaining a mortgage. 

What's better, a fixed- or adjustable-rate mortgage?
Let's explain the difference first. In a fixed-rate mortgage, the interest rate remains the same throughout the life of the loan. With an adjustable-rate mortgage, the interest rate changes, generally in accordance with an index chosen by your bank. An ARM will typically have an introductory period during which your interest rate stays steady, however. These low introductory rates appeal to plenty of homebuyers, but it's important to remember they could increase in the future. Use the terms of the loan to determine how your rate might change years from now. 

Are there any special programs I can use?
Before you sign off on a mortgage, check your eligibility for certain programs. If you or a spouse are active duty or military veterans, VA loans requiring little to no down payments may be available to you. FHA loans accommodating low credit scores could be open to first-time homebuyers. And if you live in a rural area, the USDA could provide assistance with closing costs after you have bought your home.

How big of a down payment should I make?
A general rule of thumb is this: The smaller the down payment, the higher the interest rate. So while you may be tempted to make a quick small down payment up front, doing so may very well cost you more money in the future. If possible, try to pay 20 percent of your home's price at the start. If that's too much, don't be overly concerned. Depending on your bank and the terms of your settlement, you may be able to pay as little as 5 percent in down payment.