Mortgage Rates Drop and Short Term Loans Rise

The housing market has seen a recent influx of buyers and with continually decreasing mortgage rates, it's easy to see why. Freddie Mac's most recent mortgage survey reveals a 30-year fixed rate loan carries an average mortgage rate of 3.75 percent, down from 3.78 percent the previous week, reaching the fifth straight week of record lows. These rates are appealing to most buyers, but even more appealing is the average mortgage rate for a fifteen-year fixed loan, which came in at 2.97 percent, down from last week's 3.04 percent rate. This is the first time during the 21 years that Freddie Mac has tracked the rates that the 15-year loan came in below 3 percent (RisMedia).

These record lows are drawing more people to the faster pay-off loans; however, the majority of individuals taking advantage of the fifteen-year loans are refinanciers. One drawback to the shorter term mortgage is that they do carry a significantly higher monthly payment. These can range from several hundred dollars to a thousand or more monthly. Another incentive to choose the fifteen-year mortgage is Obama's Home Affordable Refinance Program, which reduces fees for new borrowers if they opt for loans that are shorter than 30 years.

One of the major perks to choosing a fifteen-year mortgage over the thirty-year is the sheer amount of money that you save in interest over the life of the loan. However, these types of mortgages are generally only recommended for homeowners who are secure financially. According to Bob Walters, chief economist at online lender Quicken Loans, people should only choose these short term loans if they have at least a year's living expenses in liquid assets and a debt to income ratio below 35% (Yahoo Finance). His reasoning behind this is quite simple, the high monthly payment can quickly spiral out of control if the homeowner loses their job or experiences an illness or other emergency.

Benefits to a 15-Year Fixed Rate Mortgage

• Lower mortgage rate
• Faster payoff time
• Less interest paid over life of the loan
• Forced savings plan

Potential Issues with a 15-Year Fixed Rate Mortgage

• High monthly payments can become unaffordable
• Less money to invest elsewhere

If you would like more information about mortgage loan options or you want to get pre-approved for a home mortgage in the East Lansing or Greater Lansing area, please contact me at MyRealtorRob. As an East Lansing realtor, I can help you buy or sell investment or residential property.