Mortgage rates dropped to new record lows this week. Here's why consumers should get a 15-year mortgage, according to Bankrate.com.
The benchmark 15-year fixed-rate mortgage fell from 3.19 percent to 3.15 percent last week and the benchmark 5/1 adjustable-rate mortgage fell from 3.02 to 3.01, according to Bankrate.com.
A 15-year mortgage means slightly bigger monthly payments, but it would result in significant long-term savings compared to a 30-year mortgage, John Walsh, president of Total Mortgage Services in Millford, Conn., told Bankrate.com.
"Maybe they're paying 50 or 100 bucks more a month, but they are cutting 15 years off their mortgages," Walsh told Bankrate.com.
For borrowers who currently pay approximately 6 percent in interest on a 30-year mortgage of $250,000, their monthly principal and interest would come to about $1,500, according to a recent survey by Bankrate.com. If the borrowers refinanced that $250,000 into a 15-year loan, they would pay $64,000 less in interest for the duration of the loan.
The 15-year loan would cost about $1,745 a month, about $245 more than the current payments, and $560 more than what the borrower would pay if the loan were refinanced to 30 years, according to the survey.
"A lot of people are looking to pay their houses off, more than a few years ago," Michael Becker, mortgage banker for WCS Funding Group in Baltimore, told Bankrate.com. "Every situation is different, but I recommend it to a lot of my clients."