How to get one of these record 15-year mortgage rates for your refinance

In the days leading up to the pandemic, 15-year mortgages – with their typically high monthly payments – were far too expensive for many people refinancing their homes. Often borrowers had just taken out another 30-year mortgage, the United States Mortgage of Choice.

But with the COVID crisis keeping mortgage rates in the basement, even the 15-year option looks cheap. That’s especially true right now, with 15-year rates at an all-time low in mortgage giant Freddie Mac’s latest survey.

More borrowers have chosen shorter-term loans: In May, 15-year mortgages accounted for 15.8% of all mortgage originations, up from just 5.5% in May 2019, according to the reports. latest data from the Urban Institute.

Here’s how to assess if a 15-year fixed rate mortgage is right for you and how to get one of the lowest 15-year rates today.

Today’s 15-year mortgages offer big savings

Average 30-year fixed-rate mortgage rates are currently well below 3%, reflecting investor concerns that the delta variant of COVID-19 could torpedo the economy’s return after the pandemic.

Thirty-year rates this week are averaging 2.77%, not far from the typical early-January rate of 2.65%, which was the lowest in the 50-year history of Freddie Mac’s weekly survey.

But the rates on 15-year fixed-rate loans are even cheaper and, in fact, are currently at an all time high: just 2.10% on average.

Let’s be clear: Due to their shorter repayment period, 15-year mortgages will be offer you a much higher monthly payment than a 30-year loan. But with 15-year rates at historic lows, payments will also be as low as possible.

Here’s an example of how you can save now with a 15-year mortgage: In early August 2019, when the average for a 15-year fixed-rate mortgage was 3.20%, a loan of $ 250,000 would have cost you $ 1,751 per month, or $ 21,012 per year.

But at the current average rate of 2.10%, that same loan will cost you $ 1,620 per month, or $ 19,440 per year – for annual savings of nearly $ 1,600.

The story continues

15-year mortgage vs 30-year loan

Better yet, the short-term mortgage will cost you tens of thousands of dollars less in total interest compared to a 30-year loan.

If you were to refinance a $ 200,000 balance at the current average rates, your monthly payment would be $ 1,296 with a 15-year loan, but only $ 819 with a 30-year mortgage – a difference of $ 477.

This can be a deal breaker for some, but when you consider the lifetime interest you would save with the shorter loan term, the high monthly payment isn’t that big of a deal.

The total interest you would pay refinancing into a 15-year mortgage at 2.10% would be greater than $ 33,000, while you would have to shell out about $ 95,000 interest on the 30-year loan at 2.77%. It’s a supplement $ 62,000.

Remember that in addition to saving over $ 62,000, you would pay off your debt in half the time.

Why shorter mortgages have better rates

The average interest rate for a 15-year fixed rate mortgage is usually lower than the average for a 30-year loan, as shorter-term loans are generally viewed as less risky by lenders.

However, since a 15-year mortgage requires a higher monthly payment, the criteria for qualifying are often more stringent than for a 30-year loan.

You might ultimately decide that the bar is too high and that you will have to look for other ways to lower your housing costs, perhaps by shopping around for a lower rate on your home insurance.

To get a 15-year mortgage, it may be necessary to increase your income above what you currently earn, reduce your debt-to-income ratio, or increase your credit score by 200 points or more.

How to find the best 15-year mortgage rate

To make sure you’re getting the best rate possible on a 15-year refi, you’ll want to check your credit score before you start looking for deals.

You will need a score between “very good” (740-799) or “excellent” (800+) if you want lenders to feel confident working with you.

If you haven’t been keeping an eye on your score lately, that’s okay – you can easily check your score online for free and get tips on how to increase it if it’s low.

Once your credit score is in good shape, you’ll want to shop around and compare quotes from at least five lenders to find the best 15-year loan deal.

Research by Freddie Mac has shown that comparing five rates can save a borrower thousands of dollars over the life of a loan, so don’t jump on the first offer you get.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.