Now's the Time for That 15-Year Mortgage

NEW YORK (MainStreet) — With interest rates at historic lows , this may be the best time ever to buy a 15-year fixed-rate mortgage.

Homebuyers can get a 15-year fixed-rate mortgage at around 4% right now, and possibly save more than $100,000 on the total cost of the home loan, based on the current 30-year mortgage rate.

Here’s why “going 15” is such a smart move, if you act now.

According to the BankingMyWay Weekly Mortgage Rate tracker, the spread between 15- and 30-year fixed-rate mortgages is growing wider, and substantially so this week. Fifteen-year rates are at 4.261%, while interest rates on 30-year loans stand at 4.989%, a spread of 628 basis points (or 0.63%). The difference provides some serious food for thought for new homebuyers.

A few weeks ago that spread was even higher, approaching 0.8%, and took the distinction as the highest spread ever tracked by Freddie Mac (Stock Quote: FRE), which follows these sorts of things.

Mortgage rates are in decline across the board these days, although the 15-year number seems to be falling faster. Economists point to the drop in U.S. Treasury Bond rates, which seems to have been spurred by the recent Japan earthquake and a nagging sense among global investors that U.S. Treasuries aren’t the safe haven most people thought they were.

Eyebrows were raised in financial bourses across the world when Pimco’s Total Return Fund slashed its U.S. Treasury holdings to zero this week in a clear sign that institutional investors are looking at the U.S. public debt picture and not liking what they see.

Mortgage yields are closely tied to bond yields and that’s a big reason why mortgage rates are so low, including those of 15-year, 30-year and adjustable rate mortgages.

So should you consider a 15-year mortgage? When interest rates fall that low, the monthly payments on 15-year mortgages – the chief barrier to using shorter mortgage terms – fall right alongside them. That means even lower mortgage payments, and a shorter repayment period on your home loan.