4.25% 30 Year Fixed Rate
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Program Rate APR
30-Yr fixed 4.750 % 0.7 to 1
15-Yr fixed 3.750 % 0.7 to 1
5/1 ARM 3.125 % 0.7 to 1
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15-Year Mortgage is Attractive

For a variety of reasons, current mortgage rates are at historically low levels. Many homeowners have taken advantage of low rates to refinance their loans and lock in attractive rates, saving potentially hundreds of dollars per month in the process. Some people with very large mortgages could save even more.

For people who have not locked in a low interest rate, they should consider doing so. One option to look into is switching from a 30-year mortgage into a 15-year mortgage. Current 15 year mortgage rates are even lower than 30-year rates, and many banks offer rates below four percent.

Switching to a shorter term loan will build equity faster. The homeowner will be done making loan payments in 15 years, rather than 30, saving thousands of dollars on interest payments over the course of the loans. The downside of a 15 year mortgage is that the monthly payments are generally higher than 30 year mortgages, since the principle is being amortized over only half the time period. While interest expense is much lower, monthly cash flow can be an issue for some people.

At the current 15 year mortgage rates, however, many people will be able to get the best of both worlds. For those people who still have high interest 30-year loans, it may be possible to not only cut down on the term of the loan, but also keep the total mortgage payment about the same. In switching to a lower-interest 15-year loan, principle payments will rise but interest payments should fall. Given these offsetting factors, it is possible that the total mortgage payment will not change very much.

In general, homeowners should try and get a new mortgage rate that is at least one percent lower than their current rate to justify refinancing their loan. They should also be planning on remaining in their current house for the next few years. Because refinancing a loan is not free, there needs to be a big enough interest savings and enough time in the house to recoup the cost of refinancing.

With current mortgage rates, getting a rate one percent lower should not be challenging for people who have not refinanced their homes in the last three years. While rates vary, many banks offer 15-year rates that are one-half to one percent lower than the current 30 year rates, which will make the math work easily for a person looking to refinance.