BOSTON (TheStreet) -- Today's record-low mortgage rates are giving consumers the choice of two great options -- 30-year mortgages that charge just over 4% interest or 15-year loans with rates nearly down to 3%.
|Thirty-year or 15-year mortgage? The right answer will depend on your circumstances, but some factors can held decide which way to go.|
Bankrate.com's latest weekly survey shows that average U.S. rates fell to 4.05% as of this week for 30-year fixed-rate mortgages, and 3.25% for 15-year fixed loans.
Both are all-time lows, which pretty much means the only thing cost-conscious homebuyers and refinancers need to decide is which type of loan to get.Should you lock in the best 30-year rate in history and enjoy its benefits for three decades or grab a 15-year mortgage's rock-bottom rate but pay the money back twice as fast? McBride says there's no single answer that covers every consumer's individual situation. 10 Ways Your 401(k) Can Fail You >> "The right answer will depend on your personal circumstances," he says. "That's why they call it personal finance." Here's a look at some factors borrowers should consider in deciding which way to go: Affordability
"The first thing to look at is the difference in monthly payments between a 15-year mortgage and a 30-year loan of the same size," McBride says. "You want to look at what that 15-year payment will be and decide if you can swing it. If you can't, that will decide it." Fifteen-year mortgages do charge lower interest rates than 30-year loans -- but carry higher monthly payments because you have to pay all principal back in half the time. For example, borrowing $300,000 for 15 years at this week's 3.25% average rate means you'll have a $2,108 monthly mortgage payment (excluding the effect of any origination fees). That's nearly 50% higher than the $1,441 you'd pay if you take out the same-sized loan for 30 years at today's 4.05% average rate (again, ignoring origination fees). Not everyone can afford such higher payments -- or convince the lender reviewing a mortgage application to "greenlight" such a loan. You can check out your potential monthly payments by plugging in specifics from your own situation into TheStreet's mortgage calculator.
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