When mortgage rates rise, how to get the lowest rate in a 15-year repayment
When mortgage rates rise, how to get the lowest rate in a 15-year repayment

When mortgage rates rise, how to get the lowest rate in a 15-year repayment

Prior to the outbreak, traditional vertical repayment of 15-year loans was too expensive for many Americans to refinance their existing home loans.

Most popular mortgage in the United States - A 30-year fixed-rate mortgage is generally cheaper than a 15-year option.

But as all rates fell last year, 15-year loans also began to fall. More and more borrowers are coming back to them: In December, 15-year mortgages accounted for 13.8% of all home loan sources, up from 10.7% a year earlier, the city's agency said.

Now as mortgage rates increase, 15-year loans seem to be more attractive at lower rates than 30-year loans. Here's how to check if a short-term loan is right for you - and how to get the lowest rate in 15 years.

Today a 15-year mortgage represents thousands of savings

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Rates on 30-year fixed-rate mortgages have risen by more than 3% in recent weeks as new stimulus tests and broader vaccines have made investors more optimistic about the economic recovery.

Last week, the 30-year rate averaged 3.09%, the highest since June, according to mortgage lender Freddie Mac. But 15-year fixed-rate loan rates are only 2.40% on average.

Let it be clear: You will now be given a 15-year loan, even at a rate of less than half a percent compared to a 30-year fixed rate mortgage, which is more than the monthly payment.

But 15-year rates are now the lowest in history (the lowest average at the beginning of this year was 2.16% on average), so payments are always cheaper.

An example of how you can save with a 15-year mortgage today: In March 2019, when the average 15-year fixed-rate mortgage was 3.76% on average, a $ 250,000 loan would cost you $ 8,819 or 8,21,828 per month. . one year.

But at the current average rate of 2.40%, the same loan costs you $ 1,655 per month or 8,19,860 per year - about $ 2,000 in annual savings.

The story continues

15 year mortgage and 30 year loan

At the current average rate, if you recalculate the 000 200,000 balance, the monthly payment would be 3 1,324 with a 15-year loan, but only $ 853 with a 30-year mortgage - a difference of about 70,470.

This can break a contract for some people, but when you save a lifetime of interest over the short term of the loan, the higher monthly payment will not be so bad.

By refinancing a 15-year mortgage at 2.40%, you pay a total interest of about 4 38,400, while for a 30-year loan you have to leave 3.09% at about 7 107,000 interest. . This is an additional $ 68,600.

Do not forget that you will pay off your loan in half an hour, in addition to a savings of approximately ₹ 69,000.

Why short term mortgages have better rates

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The average interest rate on a 15-year fixed-rate mortgage is generally lower than the average for a 30-year loan because short-term loans are generally found to be less risky by lenders.

However, because a 15-year mortgage requires a higher monthly fee, the criteria for qualifying an individual is often stricter than a 30-year loan.

You may eventually decide that the bar is too high and need to find other ways to reduce your housing costs - perhaps by shopping around to find the lowest rate of insurance for your landlord. Of home.

To land a 15-year mortgage, you need to increase your income to what you are currently earning, reduce your debt-to-income ratio, or increase your credit score by 20 points or more. .

How to find the best 15 year mortgage rate

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To ensure that you receive the best rate on 15-year renewal, you should check your credit score before you start looking for offers.

If you want lenders to be confident to work with you, you will need a "very good" (740 to 799) or "excellent" (800+) score.

If you haven't tabbed on your score in recent times, that's fine - there are online services that will allow you to check your score for free and suggest you to increase it when it is low.

Once your credit score is ship-shaped, you should compare the quotes of at least three to five lenders to find the best 15-year loan offer.

Research by Freddie Mac suggests that comparing the five rates can save thousands of dollars over the life of the borrower - so don't take the first offer you get.