Opporunity to really save $ when buying a home!

By mark-slade March 18, 2011

Can You Stomach A 15-Year Fixed Rate Mortgage Payment? Now Is Your Time To Go For It.

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Compare 30-year fixed to 15-year fixed mortgage rates 2005-2011
It’s an incredible time to look a 15-year fixed rate mortgages. Versus comparable 30-year loans, 15-year loans are cheaper than they’ve ever been in history.
There’s a 15-year fixed rate mortgage sale going on. And it’s huge.

15-Year Rates “Discounted” 3/4 Percent

According to Freddie Mac’s most recent weekly mortgage rate survey:

  • 15-year fixed rate mortgage : 3.97 percent with 0.7 points
  • 30-year fixed-rate mortgage : 4.76 percent with 0.7 points

There’s a 0.79% interest rate spread between the two benchmark rates. It’s the largest rate differential since Freddie started tracking 15-year conforming rates. The current spread is close to double the historical average.
If you can stomach the bigger payment, consider it. The interest saved over the life of your loan will be big.
For example, homeowners “going 15” at today’s rates will be responsible for just $99,000 in lifetime mortgage interest. By comparison, a 30-year fixed would require $264,000 in lifetime interest.
Over the life of a loan, you’ll save $165,000 by using a 15-year fixed mortgage. That figure represents a 63 percent (!) savings versus a comparable 30-year fixed.
It’s enough cash to send multiple children to college, among other things.

Even Jumbo 15-Year Mortgages Are Cheaper, Relative

We’ve established that the conforming 15-year fixed / 30-year fixed mortgage rate spread is big. Now get this. The spread between jumbo mortgages for 15-year fixed and 30-year fixed is even bigger.
15-year fixed rate jumbo mortgages are ridiculously cheap right now.

  • Jumbo 30-year fixed rate mortgage : 5.375 percent with points
  • Jumbo 15-year fixed rate mortgage : 4.125 percent with no points

If you can manage the larger monthly payments, the 15-year jumbo fixed rate mortgage is an unreal deal right now.

Caveats On 15-Year Fixed Rate Loans

Despite low rates for 15-year fixed rate mortgages, there still good reasons for homeowners to opt for a 30.
First, the relative tax benefit of a 30-year fixed rate mortgage outweighs that of a 15-year. This is because the amortization schedule of 30-year fixed is back-heavy; with early-term payments big on interest and light in principal.
By contrast, the 15-year fixed is always light on interest which lower its taxpayer benefits.
Second, from a payment perspective, 30-year mortgage payments are much less expensive each month. Having a small(er) mortgage payment reduces the pain of reaching other short-term financial goals.
And, lastly, if you’re moving in the next 5 years or so, paying your loan to term may be unwise anyway. Especially with ARM rates posting the lowest of all available mortgages lately.

Your Best Strategy : 15-Year Or 30-Year?

One thing to remember is that mortgage rates change everyday and the interest rate differential is non-linear over time. The chart at top proves it. If you’re not buying a home for another few months, don’t set your strategy in stone.
Know your options, but wait for Game Time to make your choice.
I make 15-year fixed rate mortgages in many states and will help you compare your options. I’m very responsive to my clients so please call or send me an email.
Plus, my rates are low.