The average cost of a 15-year fixed-rate mortgage rose 4 basis points week, settling at 2.53 percent. While that’s slightly higher than the record-low 2.49 percent in last week’s survey, 2.53 percent was the previous record, and was also the average rate for much of September.
Said another way: although the rates rose in this week’s survey, they’re still near a historic low.
Most mortgage applicants think of 30-year loans when they’re applying, and the rates on those are up slightly this week, too, to 3.08 percent.
Even so, a 15-year mortgage is worth considering, especially in the current low interest rate environment.
The main drawback to a 15-year loan is higher monthly payments compared with a 30-year mortgage for the same amount. That’s because the 15-year product is paid off in half the time. Historically, 15-year mortgages have been a stretch for many borrowers, but low interest rates translate to lower monthly payments, and may make shorter-term loans a more feasible option for some.
Aside from higher monthly payments relative to longer loans, 15-year mortgages have many benefits for borrowers. Interest rates are usually lower, and combined with the shorter repayment period, borrowers can see significant savings.
For example: at today’s interest rates, a borrower who borrows $300,000 for a 30-year mortgage will wind up paying about $160,000 in interest over three decades. Meanwhile, the interest on a 15-year loan will be around $60,000. That’s a savings of about $100,000, but the payments are about an extra $800 more per month on the shorter loan.
Another thing to keep in mind is that property prices are going up as a result of low inventory. Many places are seeing strong seller’s markets, so buyer should be prepared to compete against other offers. That might make 15-year mortgages less attractive to some, budgets are already tight.