There is now little that has not been touched by the coronavirus pandemic, and the mortgage market is no exception. Right now, mortgage rates (both for purchases and refinancing) are are at historic lowsthanks to Federal Reserve Bank rate cuts to boost the economy after the slowdown caused by the COVID-19 outbreak.
With today’s low interest rates, that’s no surprise Mortgage refinancing increases. Based on current mortgage and refinance rates, it could be a good time to refinance for you too. To see how much you could save on your monthly mortgage payment today, crack the numbers and Compare loan rates and mortgage lenders with Credible’s free online tool.
Now that you have a feel for mortgage rates and whether you can save on interest over the life of the loan, you need to determine which loan term makes the most sense for your financial situation — whether you’re a homebuyer looking to secure your mortgage first mortgage or a homeowner considering refinancing into a new loan term.
What Type of Mortgage Loan Is Best For Me?
Whether you’re looking to buy or refinance, the question isn’t, “Is now the right time?” It absolutely is when you’re looking for the lowest interest rate you’re likely to ever see.
Instead, the question should be, “Is the 15-year or 30-year mortgage right for me?”
If you’re considering refinancing your mortgage, make sure you do it Check out Credible’s daily recommended ratescomparing interest rates and the APR for 30-year and 15-year maturities.
15 vs. 30 year fixed-rate mortgage
The obvious difference between a 15-year mortgage and a 30-year mortgage is the length of time you pay back the loan. Which one is best for you will depend on a variety of personal factors, including:
- How comfortable you are with interest.
- How much interest do you want to pay?
- How much house you can afford.
- How soon do you want to be “mortgage-free”?
The 30-year term is the more traditional choice, but it exists Benefits of the 15 year mortgagedepending on your financial goals.
The best way to tell the difference between a 15-year mortgage and a 30-year loan term is to visit multiple lenders, which Credible lets you do at once. See what rates you qualify for based on your desired repayment term via their free online tools.
Pros and cons of a 30 year mortgage term
There’s a reason a 30-year fixed-rate mortgage is the typical choice for both borrowers and lenders.
- It’s cheaper every month to spread a home purchase over 30 years
- You have a lower monthly payment
- There are lower qualification criteria (earnings and debt-to-income ratio)
- Flexibility to pay off the loan faster if you want
However, there are some downsides to be aware of.
- During the life of the loan, you could end up paying more interest
- Interest rates on 30-year mortgages are often higher. For example, the interest on a 15-year mortgage on a $250,000 house at 3.2% interest is about $65,000. The interest paid over 30 years on a $250,000 loan at 3.8% interest is over $100,000 more – $169,361.62.
- Example: For a $250,000 house at 3.2% interest, the total interest paid on the 15-year mortgage is approximately $65,000. The interest paid over 30 years on a $250,000 loan at 3.8% interest is over $100,000 more – $169,361.62.
Pros and cons of a 15 year mortgage term
There are some obvious benefits to being able to afford to take on a 15-year mortgage.
- You pay as little interest as possible
- You can save more over the life of the loan
- You build up equity in your own home faster
But you should also be aware that having a 15-year fixed-rate mortgage isn’t always easy.
- You don’t have as much money for other needs
- Your monthly payments will be higher. In the example above with the same house price and interest rates, the 15-year payment would be $1,750 per month compared to the 30-year payment of $1,164.
- Using the example above with the same house price and interest rates, the 15-year payment would be $1,750 per month compared to the 30-year payment of $1,164.
Credible can help you compare mortgage lenders and save money on your monthly payments and beyond with their online tools. Checking the personalized tariffs only takes three minutes and will not affect your credit score.
A 30-year term for mortgage refinancing
A 30-year mortgage refinancing term is very similar to a 30-year purchase mortgage, but with one major difference: if you refinance to another 30-year term, the payout clock starts over.
If you bought in 2018 and then refinanced in 2020, your payout year would be 2050, not 2048, but the monthly payments would still be lower on the 30-year refinance.
A 15-year term for refinancing mortgages
However, 15-year mortgage refinance rates are among the lowest in the group. At the time of publication, the current 15-year fixed refinancing rate is 2.5% compared to the current 30-year refinancing rate, which is half a percent higher at 3.03%.
Due to the lower interest rate and shorter term Refinance into a 15-year mortgage enables homeowners to build equity faster and pay off the loan sooner.
If you’ve decided that refinancing your home loan is right for you, Visit Credible to find personalized rates and lenders in one place.
But don’t discount the hefty monthly payments that come with a 15-year mortgage. Not only does this leave less money to spend and save, but the higher monthly payments mean more income is required overall to qualify, making a 15-year mortgage unaffordable for many.
Is a 15-year or 30-year mortgage better?
Ultimately, no one can say definitively, “Is the mortgage better at 15 or 30?” because it depends on so many factors that are unique to the individual borrower.
If you want to save as much money as possible on interest and pay off your home earlier, the 15-year-old should be sufficient. Consumers who want to buy a home while still having the flexibility to save for other goals, such as home repairs and retirement, should choose a 30-year term.
One thing is for sure, with interest rates this low, now is the perfect time to buy or refinance, whichever option you choose. Get started on your mortgage refinance application through Credible today.
And one last tip, the best way to determine what you would end up paying in interest is to do this Use an online mortgage calculator to do the calculation.