By Jeff Brown
Mortgage rates have fallen close to the all-time lows set in January. The BankingMyWay.com mortgage rate index shows 30-year fixed-rate mortgages average 5.15 percent, 15-year fixed loans 4.82 percent, and the one-year adjustable-rate loan 5.44 percent.
Which is the best choice?
For most people, the old-fashioned 30-year fixed loan is probably best today. But that’s not always so. As rates and other conditions change, the best option on one day may be the worst on another.
Here’s a brief primer on the different mortgage options out there, considering how the low rates might factor into your decision making.
The 30-year fixed loan: The interest rate is set when the loan is issued, and the rate and monthly payment never change. These loans are a terrific deal right now. At 5.15 percent, you would pay just $546 a month for every $100,000 you borrow, according to BankingMyWay’s mortgage loan calculator.
The 15-year fixed loan: The rate and payments also stay the same for the loan’s life. But because the principal – the sum you borrow – must be paid back twice as fast, this portion of the monthly payment has to be bigger. If the rate were the same 5.15 percent as the 30-year loan, the 15-year would charge $798 a month per $100,000 instead of $546 on the 30-year. At the 4.82 percent rate mentioned above, the payment would be $781.
The 15-year term means paying less interest over the life of the loan -- $40,660, compared to $96,567 on the 30-year.
If you can handle the bigger monthly payment, the 15-year seems like a better option, but that’s a big “if.” Also consider that the extra money used for payments on a 15-year deal might be put to better use – in an investment, for example. If you could get a 10 percent investment return, getting a 30-year loan and investing the monthly savings would be better than “earning” just 4.82 percent by reducing your interest charges with a 15-year deal.
