Mortgage rates hover below their June highs. Is now the time to get a mortgage?

While 30-year fixed mortgages rose above 6% in June, they now sit just below that number at 5.90%, according to Bankrate data from August 25. The national average for 15-year fixed-rate mortgage loans has dipped a bit to 5.12%. (See the lowest mortgage rates you can get now here). 

How to get a lower mortgage rate

If you can shorten your loan term, you’ll likely benefit: 15-year mortgage rates are below 30-year mortgage rates. It also may be worth considering an adjustable rate mortgage (ARM), if it makes sense for your long-term plans. The latest Bankrate data shows that average rates on 5/1 ARMS (rates are fixed for five years, then adjust) are 4.34%, substantially lower than both the 15-year and 30-year fixed rate mortgages. It’s important to note however that ARMs often make the most sense for short-term homeowners who only plan to be in the same home for 5 to 7 years. Because ARM rates become variable, “ARMs can be risky, and in the long run they may end up costing more than a fixed mortgage with a higher upfront rate,” says Jacob Channel, LendingTree’s senior economic analyst, recently told MarketWatch Picks.

Experts recommend shopping around, getting quotes from 3 to 5 lenders and figuring out your credit score (improve it if needed) and debt-to-income ratio (DTI), which can help you determine what rate you can expect to pay.  To calculate your DTI, divide your monthly debt payments (mortgage; credit card payments; auto, student or personal loans; child support) by your gross monthly income. If the number you come out with is at or below 36%, your chances of qualifying for a mortgage, and at a better rate, are better than if you come out with a higher number as your DTI. (See the lowest mortgage rates you can get now here). 

Another way to decrease your mortgage rate is to use discount points, which are fees paid to reduce an interest rate.  Typically, one point decreases the interest rate by 0.25%, though this can vary. “When you pay discount points, you’re handing the lender a chunk of interest payments up front in exchange for paying less interest every month,” Holden Lewis, home and mortgage expert at Nerdwallet, recently told MarketWatch Picks. But note that there may be limits to how many discount points you can buy, and buying points may not make sense, especially if you don’t plan to stay in the home for long.