The average interest rate on a 15-year fixed mortgage fell to 2.37 percent in Bankrate’s weekly survey this week, down two basis points from its previous record low earlier this month.
Shorter-term mortgages like the 15-year have risen in popularity for borrowers as a result, because low interest rates have made them more affordable for many homeowners. Their shorter repayment period and lower interest rates mean 15-year loans can be significantly cheaper overall than their more popular 30-year counterparts. That savings is generally the result of less interest paid over the life of the loan, but it’s offset by higher monthly payments while the debt is still active.
A borrower with a $300,000 mortgage will save around $100,000 in interest if they can afford the higher monthly payments on a 15-year loan instead of a 30-year one.
Can rates go even lower? Greg McBride, Bankrate’s chief financial analyst, sees upward movement after many weeks of new lows. “The long overdue passage of stimulus will give a slight, and brief, bump to rates.”
If you’re thinking about getting a new mortgage or refinancing your existing one, it could be a great time to crunch the numbers and see if you can boost your long-term savings by getting a shorter-term loan. Just remember to take a long view though. Your monthly payments will remain high until the debt is gone, and you don’t want to max out your monthly budget just to save on interest.