Archive for April, 2013

15-year mortgage rate Vs. 30-year mortgage rate
There is no shortage of decisions to be made when
applying for a new mortgage loan. Consumers have
to select a lender and then decide between a fixed
or an adjustable rate, and then make the biggest
decision of all, 30 year or 15 year loan.
A 30-year mortgage financing loan has always been
the most popular for consumers purchasing a
house, but as interest rates remain at record low
levels, consumers are slowly turning to 15-year
loans because of how affordable they have grown
since 2010.
Statistics from the Mortgage Bankers Association
show that a 15-year loan accounted for 23 percent
of refinancing applications in November of last
year. This is up 51 percent from a year earlier. For
the whole year, 15-year mortgages made up 35
percent of all refinance loans. In 2007, 15-year
mortgage loans made up for only 8.5 percent of the
refinance market.
Rates are becoming extremely affordable for a 15-
year loan, so more consumers do not mind the
higher monthly payment because of amount that
they are saving in the long run. Consumers are
saving themselves in the tens of the thousands in
interest over the life of the loan vs. the life of a 30-
year loan.
The chart below illustrates the savings generated from
obtaining a 15-year mortgage vs the traditional 30-
year one. On a median priced home of $366,930, a
homeowner could save up to $117,000. Figure 1
breaks down payment and interest schedule for the
two types of loans.
The saving is the result of the historically low rates,
which are also lower for 15-year loans. While the
mortgage rates are not going to stay this low, as Frank
Nothaft, chief economist at Freddie Mac, said “a 15-
year fixed is three-quarters of a percentage point even
lower….You can lock that in and never have to worry
about refinancing again.”
There are advantages in selecting either a 15-year
mortgage or a 30-year mortgage. The main
advantages for selecting a 15-year loan are that:
consumers pay off mortgage faster, save money in
interest and build equity much faster. While these are
great advantages, more Americans find using a
traditional 30-year loan gives them the advantages of:
having a lower monthly payment and having extra
cash to increase their savings.

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