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The wow factor in current mortgage rates

July 25, 2011

| MoneyRates.com Senior Financial Analyst, CFA

30-year mortgage rates have fallen for eight straight weeks now, and are now at the extremely low level of 4.49 percent. Still, the real wow factor in current mortgage rates can be found in 15-year mortgages.

15-year mortgage rates are at 3.68 percent, which is close to an all-time low. What's striking is that this is 0.81 percent below the level of 30-year mortgage rates.

Over the eleven previous years so far in this century, the spread between 15-year and 30-year mortgage rates has ranged between 0.31 percent and 0.66 percent, so the 0.81 percent spread between current mortgage rates is very unusual territory.

Making the most of current mortgage rates

Even though the more compressed repayment schedule of a 15-year mortgage would result in significantly higher monthly payments than a 30-year mortgage, current mortgage rates indicate the anyone buying a house or refinancing a mortgage should at least consider the shorter option.

Over the long run, of course, the amount of principal involved in a 15-year and 30-year mortgage would be the same. However, the interest you would pay on a 15-year mortgage is considerably less. This is true in general because you would be repaying the loan in half the time, but it is especially true now because of that unusually wide spread between 15-year and 30-year mortgage rates.

While this is an opportunity for new home buyers to save a great deal of money over the course of a mortgage, the opportunity represented by 15-year mortgage rates should be especially compelling for anyone who is refinancing.

If you are several years into paying down a 30-year mortgage, you effectively no longer have a 30-year loan. Your remaining principal is spread over however many years you have left on the mortgage. For example, if you are ten years into a 30-year mortgage, you effectively have 20-year loan remaining. At that point, it might not be too big a stretch to refinance into a 15-year loan. The exceptionally low level of 15-year mortgage rates may mean the increase in your monthly payments is manageable, and in the long run your interest savings will be substantial.

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