Choosing A 15-Year Fixed Rate Mortgage Over A 30-Year Fixed Rate Mortgage
It’s not just 30-year fixed rate mortgages that are posting all-time lows these days. The 15-year mortgage has been plunging, too.
If you’ve ever considered a 15-year loan term, it’s a terrific time to talk to your lender. According to Freddie Mac’s weekly mortgage rate survey of roughly 125 U.S. lenders, at 3.30 percent, the 15-year fixed rate mortgage is at its lowest point in history.
The 3.30% rate doesn’t come for free, however. Based on average loan term nationwide, borrowers in New York choosing to “go 15″ should expect to pay 0.6 discount points at closing. 1 discount point is equal to 1 percent of your loan size.
With low rates, 15-year fixed rate mortgage can be enticing; a primary benefit is the huge reduction in the long-term interest costs of your loan. The downside, though, is that monthly mortgage payments can be relatively large.
At today’s mortgage rates, a 15-year fixed rate loan carries a principal + interest payment of $705.10 per $100,000 borrowed — a 46% increase over a comparable 30-year fixed rate loan. If you can manage the bigger payments, though, you’ll reap $47,000 in interest payments savings per $100,000 borrowed in paying off your loan in full.
$47,000 per $100,000 borrowed is a huge amount of savings and those saved monies can be used to fund items such as college, home improvement, and retirement, among others.
That said, the 15-year fixed rate mortgage is not for everyone.
Because it comes with higher monthly payments, the 15-year fixed rate mortgage may add financial stress to your household budget. And, once you have committed to a 15-year loan term and its payments, you’re can’t “go back”. Your lender won’t revert your loan to a 30-year schedule without a refinance, and a refinance could be costly.
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