December 2013 : Extra-Low 15-Year Mortgage Rates Will Reduce Your Payments 65%
The 15-year fixed rate mortgage has emerged as this year's "great mortgage deal".
For mortgage applicants who can manage the monthly payments of a 15-year loan, the benchmark product is worthy of consideration. 15-year mortgage rates are extremely low as compared to equivalent 30-year products.
There's a sale on 15-year mortgage rates. You can save a lot of money by going with a 15.
Big Bargain : The 15-Year Fixed Mortgage Rate
Each week, Freddie Mac publishes its Primary Mortgage Market Survey (PMMS). The survey reveals the average mortgage rates of more than 100 U.S. lenders for borrowers showing strong credit, reasonable debt-to-income ratios, and sufficient home equity.
The average 30-year fixed rate mortgage rate goes for 4.29% for mortgage applicants willing to pay 0.7 discount points at closing plus the typical closing costs associated with a mortgage.
In Orange County, California, therefore, where the 2014 conforming loan limit is $625,500, a homeowner getting quoted at 4.29% for a 30-year loan while borrowing at conforming mortgage maximum should expect to pay an additional $4,379 in closing costs as "discount points".
By contrast, for the same amount of points, rates for 15-year fixed rate mortgages are lower.
The Freddie Mac survey shows the average 15-year fixed-rate mortgage rate at just 3.30% -- a 0.99 percentage point discount from the 30-year. This is nearly 300% bigger than the historical mortgage rate difference.
Because of the lower rate and the 15-year loan's shorter term, a homeowner can save monstrous amounts of money by "going 15". The money saved is enough to send multiple children to college; or, to establish a strong, diversified retirement fund; or, to meet other household financial goals.
Have you seen today's low mortgage rates?
You'll Pay 65% Less Interest With A 15-Year Loan
The schedule by which you pay a mortgage to zero is known as your amortization schedule, and via the amortization process, there are two basic truths:
- The lower your loan rate, the less interest you'll pay to the bank monthly
- The shorter your loan term, the less interest you'll pay to the bank over time
Because of these two truths -- and because 15-year rates are available cheaply -- homeowners using a 15-year mortgage stand to save hundreds of thousands of dollars.
Consider this fictional home buyer in the Lincoln Park neighborhood of Chicago, Illinois. With a $300,000 loan size, the buyer compares the total cost of a 15-year mortgage to the total cost of a 30-year mortgage.
Over its life, the 15-year mortgage will require $81,000 in interest payments to the lender and the 30-year will require $234,000. The 15-year loan saves sixty-five percent.
Meanwhile, in high-cost areas such as Loudoun County, Virginia; San Jose, California; and New York City, New York, the real cost savings are even starker. A homeowner borrowing at the local conforming loan limit of $625,500 will save more than a quarter-million dollars in the process of paying off the loan.
That's a lot of cash which can do a household a lot of good.
Caveats Of The 15-Year Fixed Rate Mortgage
Low rates and long-term savings can make the 15-year mortgage attractive, but the program can be impractical sometimes.
For example, because the 15-year mortgage's amortization schedule requires very little interest to be paid on the loan, the tax benefits of a 15-year loan can be small as compared to a 30-year loan. This can reduce tax deductions for homeowners claiming mortgage interest with the IRS.
Another reason you may not like the 15-year mortgage is that mortgage payments on 15-year loans are substantially higher than payments for comparable 30-year ones.
At today's rates, the difference in payments is 43%. With larger monthly payments, homeowners using a 15-year mortgage may have less cash on-hand for meeting very-short-term needs and certain household savings goals.
And, third, if you plan to move within the next 5 years or so, attempting to pay your loan to term may unwise anyway -- especially with adjustable-rate mortgage rates as low as they are. The best choice in this case may be a ARM of 5- or 7-years.
Today's average rate for the 5-year ARM is 2.94% nationwide.
Get A 15-Year Mortgage Rate Quote
15-year fixed rate mortgages can be a terrific way to save money on your mortgage; and, to own your home faster. Plus, for homeowners with FHA-insured mortgages, using a 15-year loan term can get you access to lower mortgage insurance premiums.
Take a look at today's low 15-year rates. Rate quotes are available online with no cost and no obligation.