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No discount for 15 year mortgage vs. 30 year?
Old 12-24-2008, 01:25 PM   #1
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No discount for 15 year mortgage vs. 30 year?

I suspect Brewer will be able to help with this one. I remember traditionally you'd get ~0.5% off the rate of the loan by doing a 15 year vs. 30 year mortgage, made sense. Now I see 15 year rates the same or even higher than 30 year. What's up with that? I saw a 30 year @5.0% with less than a point in fees and 15 year @5.375% from the same lender!

If the 15 year loans were giving the traditional discount I'd be shopping right now. But I'm in a 5.125% for 20 years so the current offerings don't make sense yet.
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Old 12-24-2008, 02:21 PM   #2
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If there's no discount for 15 years vs 30, then what's the point of going 15? You might as well take the 30 year loan and pay as much as you can afford month to month. You would get to keep the flexibility of the 30 year payment if money gets tight.

Seems hokey to have both terms with the same rate....
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Old 12-24-2008, 03:08 PM   #3
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Just watch out for prepayment penalties (do they still have them?). What happened to the 40 year mortgage, seems to be all but forgotten.
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Old 12-24-2008, 03:19 PM   #4
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What happened to the 40 year mortgage, seems to be all but forgotten.
No bargains there either. It was on NFCU's website last week, IIRC at the same or higher rates than 30-year loans, but this week it's gone.
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Old 12-24-2008, 04:38 PM   #5
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Market is all wacky now, so who knows?
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Old 12-24-2008, 05:15 PM   #6
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There's been little break for the 15-year for quite some time. In this environment, I would definitely opt for the 30 if you have the discipline to pay it down like a 15, if not even more aggressively. The flexibility in terms of reducing the payment when cash flow is tight is nice, and if it comes at almost no extra cost, why not?
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Old 12-24-2008, 07:56 PM   #7
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DW wasn't interested in refinancing until I showed her the payment difference, the flexibility in case of tight times in the future is tempting. We could survive if I lost my job and had to rely on her consulting, but it would be brutal. These 30 year rates compared to the 20 we are in means close to $600/month lower payments. I'm going to just watch for a while.
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Old 12-24-2008, 08:00 PM   #8
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I figure there must be a special program by Fannie Mae and/or Freddie Mac which targets the 30-year loans but not the 15-year loans. Because these lenders can sell to Fannie and/or Freddie at a higher price (lower yield), they are offering low rates on the 30-year loans but not the 15-year loans.
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Old 12-24-2008, 10:57 PM   #9
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No bargains there either. It was on NFCU's website last week, IIRC at the same or higher rates than 30-year loans, but this week it's gone.
Yeah I happened to notice the 40 yr rates on the NFCU web site in the last couple of weeks. I don't remember exactly what they were but it seems to me that they were significantly higher than the 30 yr. So much so that I can't imagine the payment difference could be worth it. But I didn't actually look at the amortization schedules or monthly payment amounts, of course. I wasn't that curious.
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Old 12-26-2008, 05:26 PM   #10
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Yeah I happened to notice the 40 yr rates on the NFCU web site in the last couple of weeks. I don't remember exactly what they were but it seems to me that they were significantly higher than the 30 yr. So much so that I can't imagine the payment difference could be worth it. But I didn't actually look at the amortization schedules or monthly payment amounts, of course. I wasn't that curious.

I agree the 40 yr rate does not look great payment wise unless you are really in a bind, but there may be a lot of folks much higher rates that have not refi'd. Here's NFCU's rates from 12/19 or thereabout:

conforming loans require add'l 1% orgination fee

Term/ Rate/ Pts/ APR
40 / 5.25/ 0.75/ 5.382
30 / 4.75 /1.25/ 4.984
15 / 4.25 /1.25/ 4.59
I once had a financial couselor tell me he would take a 100 yr mortgage if he could find one because inflation even at nominal rates de-values the cost of future payments.
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Old 12-26-2008, 05:52 PM   #11
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Here's a good refinance tutorial with calculators that take more into account that just the monthly payment difference.

Mortgage Refinance Tutorial
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Old 12-27-2008, 04:29 PM   #12
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I once had a financial couselor tell me he would take a 100 yr mortgage if he could find one because inflation even at nominal rates de-values the cost of future payments.
Be careful now. You're getting perilously close to the "pay it off or carry a mortgage" topic/debate! It always seems to go there.
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Old 12-28-2008, 01:47 AM   #13
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Most mortgage rates are predicated upon the assumption that the borrower will move (and pay the loan off) within the 7 years (on average) that people live in one residence.

So the rates tend to fluctuate based on the 5-7 year part of the yield curve, even if the loan has a term of 15 or 30 years.

The longer you hold your loan (and pay interest) the better things are for the mortgage backer who collects the interest. 15 year loans tend to appeal to people who are interested and capable of paying off quickly, while 30 year loans tend to appeal to folks who won't or can't pay them off early. The mortgage backer actually prefers you to hold for the 30 year term, and incentivizes you to do so by offering a rate equal to the 15 year term, even though the 30 year term has more interest rate fluctuation risk to them.

And as others have mentioned, the greater number of 30 year loans available means more liquidity than for 15 year mortgages.

These pricing inefficiences aren't arbitraged away because the 7-8% total closing costs on real estate transactions prevent people from trading the spread. If you are one of the rare people who really will stay in your loan for 30 years, you may be able to take good advantage of these inefficiencies but most people who think they will be there for 30 years pay back the loan much earlier.
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Old 12-31-2008, 11:37 AM   #14
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Interesting to see what is happening out there. There is suddenly a bid for mortgage bonds and the curve has reverted to normal. Just looking at pen fed, 10 year fixed rates are below 15 year which are below 30 year, and rates have dropped a chunk vs. yesterday. Still not low enough for me to pull the trigger, but edging closer.
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Old 12-31-2008, 03:43 PM   #15
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Was close enough for us....but we were sitting on a 5.75% 30yr fixed. PenFed's 15yr is back to the ridiculously low 4.625% it hit only for a day or two earlier this year.

And per the OP's question...that is a 0.75 point difference from the 30 year fixed rate they offer. But I'm sure it'll change tomorrow or Friday ;-)
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Old 01-02-2009, 01:23 AM   #16
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Huh, thanks. I think we'll be pulling the trigger soon. I've got 16+ years left on our 20 year mortgage, and the rates are about where the same payment knocks a year off by refi-ing into a 15 year mortgage.
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Old 01-02-2009, 05:01 AM   #17
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Was close enough for us....but we were sitting on a 5.75% 30yr fixed. PenFed's 15yr is back to the ridiculously low 4.625% it hit only for a day or two earlier this year.

And per the OP's question...that is a 0.75 point difference from the 30 year fixed rate they offer. But I'm sure it'll change tomorrow or Friday ;-)

I'm in the same boat. 5.75% on a 30 yr fixed with approx 14 1/2 years left on the loan. NFCU was down to 4.285% about 3 weeks ago for their 15 year fixed. I didn't jump then and probably should have!

Mike
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Old 01-02-2009, 03:51 PM   #18
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I'm in the same boat. 5.75% on a 30 yr fixed with approx 14 1/2 years left on the loan. NFCU was down to 4.285% about 3 weeks ago for their 15 year fixed. I didn't jump then and probably should have!

Mike
I had a 6% 30 yr with 17.5 yrs left to pay off and refi'd with NFCU to a 4.25% 15 yr with 1.875 pts. I closed on the 22d. I was worried about jumping on it too soon, but so far I don't have much reason for remorse, I guess. Time will tell, but it was a pretty good deal so I grabbed it.

Our monthly increased by $21 but we knocked 2.5 years off the payoff time, so it'll pay off nicely in the end. And just skipping the one month of required payment will fund the monthly difference for almost 3 yrs, cash flow-wise.

Good luck
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