No matter who you ask, today’s 15-year mortgage looks like a terrific deal. But borrowers should carefully weigh the issues before choosing one over the 30-year alternative.
For many borrowers, it would pay to get the 30-year loan at a slightly higher interest rate and then try to save interest charges by paying it off early.
The BankingMyWay survey shows the average 15-year mortgage charging a bargain rate of 4.601%, compared to 5.189% on 30-year fixed-rate mortgages.
A separate survey by Freddie Mac (Stock Quote: FRE) puts the 15-year rate at 4.36% with 0.6 points the lowest since the government-owned company started tracking those loans in 1991. Freddie Mac says the 30-year loan averages a near-record-low of 4.94% with 0.7 points.
At first glance, both surveys make the 15-year loan look like the best deal.
But 15-year loans have a drawback: Because the principal, or amount borrowed, must be paid back in half the time, monthly payments are larger even when the rate is lower than 30-year loans.
For every $100,000 borrowed on a 15-year loan at 4.36%, monthly payments would be $758, according to the BankingMyWay Mortgage Loan Calculator. Payments on a 30-year loan at 4.94% would be just $533.
Because the 15-year loan is paid of twice as fast, interest charges over the loan’s life are dramatically lower, at $36,414 compared to $91,938 on the 30-year deal.