About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs
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Freddie Mac is reporting that rates on 15 year mortgages and 5 year ARM’s are hitting new all time lows this week. The previous record low rates on these two mortgage products happened last November. Rates on 30 year fixed and other mortgage types did not break new record lows but are near the all time lows this week.

15 year mortgages are not for everyone but have some major advantages for families who can afford higher monthly payments. The primary advantage of a getting 15 year mortgage, besides the obvious benefit of paying off twice as fast as a 30 year loan, is that rates on 15 year mortgage tend to be at least a half a percent better than rates on 30 year mortgages. So over the life of the loan people with a 15 year mortgage pay much less in interest. The downside to 15 year mortgages is that payments tend to be significantly higher than the same loan amount being paid off over 30 year. Here is an example:

– The principal and interest payment on a $200,000 loan over 30 years at 3.5% would be about $898/month
– The principal and interest payment on a $200,000 loan over 15 years at 2.75% would be about $1357/month

So despite the 15 year rate being 3/4 of a percent lower in the above example, the minimum monthly payment is still nearly $460 higher. For a family that could easily afford the extra $460 or so per month the 15 year mortgage makes great sense in the long run. For families that don’t have that kind of extra monthly cash, a 30 year loan probably still makes sense.

The other thing to consider is that on a 30 year fixed loan there is virtually never a prepayment penalty. So a family with a 30 year loan could always pay ahead and still knock their mortgage out in less than 30 years if they wanted. The advantage of voluntarily paying ahead every month on a 30 year loan is if there comes a time when money gets tight you can go back to the minimum payment. With 15 year mortgages that higher payment is due every month regardless of income fluctuations.

Record lows on mortgage interest rates, by definition, are very rare. Contact us in the sidebar today to get a refinance estimate for your home.

Comments (0) Posted by G.R.A. Admin on Thursday, April 25th, 2013

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