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Posted January 19, 2015
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Mortgage Rates Drop Again
According to Freddie Mac's most recent weekly mortgage rate survey, 30-year interest rates have dropped to 3.66 percent, on average, nationwide; and, 15-year rates have dropped below three percent to 2.98%.
Rates are the lowest they've been in 1820months, helping home buyers to extend their purchasing power and putting millions of U.S. homeowners "in the money" to refinance.
However, for homeowners who can manage the accompanying payments, it's the 15-year mortgage which proved to be today's best "deal" in home loans.
15-year mortgage rates currently beat 30-year rates by 68 basis points (0.68%) which yields a mortgage interest savings of sixty-three percent over the life of a loan.
The 15-Year Mortgage Is A Long-Term Saver's Dream
15-year mortgages save money as compared to 20-year and 30-year loans. There are two reasons why.
The first reason is that 15-year mortgages are nearly always available at a lower interest rate and APR than a longer-term loan. When interest rates are lower, homeowners pay less mortgage interest paid to bank.
The second reason why 15-year mortgages save money is that, after 15 years, there's no more mortgage to repay; the loan is paid in full. This is five years shorter than loans with a 20-year terms.
It's half the number of years as compared to a 30-year loan.
At today's mortgage rates. assuming a loan size at the national average of $268,500, homeowners with a 15-year loan will pay $109,000 less mortgage interest as compared to a comparable 30-year fixed rate mortgage -- a savings of 63%.
Making the 15-year payment is more costly monthly, but the money saved after fifteen years is real. It's money which can be used for any number of purposes including college tuition payments, retirement funding, or business investment.
The savings can also be used to purchase a second home or vacation property.
Homeowners Increasingly Choose 15-Year Loans
Today's low mortgage rates have enticed homeowners to choose 15-year loans over 30-year ones.
According to recent refinance data from the government, 30% of homeowners who refinanced their 30-year fixed rate mortgage in Q3 2014 chose to refinance into a 15-year loan.
It marked the third straight quarter in which transitions to the 15-year loan was thirty percent or more -- a 5-fold increase from early-2009.
Mortgage rates have been falling to new lows for the last 55 weeks.
Conventional 15-year mortgage rates now average 2.98 percent last quarter for borrowers willing to pay 0.5 discount points at closing. 0.5 discount points carries
a cost of 0.5 percent of your loan size.
A homeowner in Orange County, California, therefore, borrowing at the local conforming loan limit of $625,500 could expect to pay discount points in the amount of $3,128.
For borrowers using FHA loans and VA loans. mortgage rates are even lower.
Recent thirty-year fixed rate data from mortgage-origination software provider Ellie Mae shows FHA mortgage rates averaging approximately 25 basis points (0.25%) less than rates for a comparable conventional loan; and VA mortgage rates averaging 37.5 basis points (0.375%) less.
Many banks now quote 15-year rates and APR in the mid-2s. Discount points are rarely required.
Considerations For The 15-Year Loan
The 15-year mortgage offers huge savings to U.S. homeowners, but the program won't be for everyone -- especially because monthly payments are much higher than for a comparable 30-year loan.
At today's mortgage rates, the monthly payment for a 15-year loan is fifty-one percent higher than a 30-year loan. This means that, at the average mortgage loan size of $268,500, a homeowner would pay $622 more per month on the 15-year amortization schedule.
This can be a budget-breaker for some households; and, it's harder to meet debt-to-income requirements with a larger monthly mortgage payment. Before considering the 15-year mortgage, then, make sure the monthly obligation is a manageable one.
If the obligation is too much but you still want the benefits of paying less mortgage interest over time, consider a refinance to a new 30-year loan, then making payment as if was a 15. You'll still get the benefits of today's low interest rates but your repayment schedule will remain within your control.
When you refinance a mortgage, it's your prerogative as the homeowner to send extra principal to the bank each month along with your payment. Your mortgage lender can tell you how much additional principal to send each month in order to have your loan pay-in-full in just 15 years.
You can also use the home mortgage calculator to check the math yourself.
Get Today's Mortgage Rates
Current mortgage rates are at their lowest levels since May 2013. It's an excellent time to consider a refinance -- especially if you're looking at the 15-year mortgage as an option.
Get today's live mortgage rates now. Rates are available online for free. No social security number is required to get started and there's no obligation to proceed.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.