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Home Buyer Manual

15 Year Fixed chosen more than 30 year

Sunday, December 9, 2012 - Article by: Home Buyer Manual - Homeland Lending - Message

Mortgage Rates : Get A 15-Year Mortgage Rate

According to Freddie Mac's most recent weekly mortgage rate survey, conforming 15-year fixed rate mortgage rates and conforming 30-year fixed rate mortgage rates are at their lowest levels in history.

15-year fixed rate mortgage : 2.64 percent, on average, nationwide
30-year fixed-rate mortgage : 3.32 percent, on average, nationwide
And not only are mortgage rates low, the relative value of a 15-year fixed rate payment is huge as compared to a comparable 30-year loan. There's a 68 basis point spread between the two benchmark rates -- a figure that's nearly double the historical average.

If you can stomach the larger mortgage payment that comes with a 15-year loan term, it's worthy of your consideration. The interest you'll save over the life of your loan will be monstrous -- enough to send children to college; or to stash for retirement, for example.

15-Year Mortgages Save 63% In Mortgage Interest Costs

Low mortgage rates mean less mortgage interest paid over time, and this is where the 15-year fixed rate mortgage rate shines.

A homeowner in Chicago, Illinois, for example, using a 15-year fixed rate mortgage at the local conforming loan limit of $417,000 will pay just $88,000 in mortgage interest over the loan's lifetime.

With a 30-year fixed rate loan, the interest costs nearly triple to $242,000.

In high-cost areas such as Loudoun County, Virginia; San Jose, California; and New York City, New York, the comparison is even starker.

A homeowner who borrows at the local conforming loan limit of $625,500 will save close to a quarter-million dollars in mortgage interest over time.

Caveats 15-Year Fixed Rate Mortgage

Low rates make 15-year fixed rate mortgages attractive, but there are plenty of reasons for homeowners to opt for a 30-year fixed rate loan instead.

The first reason is that the relative tax benefit of a 30-year fixed rate mortgage is larger than that of a comparable 15-year fixed rate mortgage (for so long as the mortgage interest tax deduction exists).

This is because the amortization schedule of 30-year fixed is front-loaded with interest, which increases the amount mortgage interest that can be claimed by homeowners itemizing deductions and claiming mortgage interest each year.

The second reason is that, from a payment perspective, 30-year fixed rate mortgages offer smaller payments as compared to 15-year fixed rate mortgages. Having a small monthly payment to the bank frees up cash to help meet other short-term needs and savings goals.

And, lastly, if you're planning to move within the next 5 years or so, paying your loan to term may be unwise anyway. Especially with adjustable-rate mortgages posting the lowest of all available mortgages lately.

Get A 15-Year Mortgage Rate Quote

15-year fixed rate mortgages can be a terrific way to save money on your mortgage long-term; 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 via the FHA Streamline Refinance program.

If you're shopping for a mortgage rate today, consider the 15-year mortgage. If the larger payments are manageable, you stand to save hundreds of thousands of dollars over the life of your loan.

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