15-year, 15-year, 15-year

Average at lowest point in decade & 56 BPS better than 30-year
By SAM GARCIA
7/19/2002

Fifteen-year fixed rates have fallen to levels not seen in a decade. Adding to the 15-year's allure is its spread over the 30-year.

In Freddie Mac's survey of 125 thrifts, commercial banks and mortgage lending companies, the average 15-year fixed rate mortgage was reported at 5.93%, lower than any monthly level since 1991 when Freddie began tracking the product. The 15-year was 0.07% -- or seven basis points (BPS) -- better than last week. In addition to an attractively low fixed rate, the 15-year offers a more rapid paydown right from the outset.

For instance, on a $250,000 loan today the thirty-year average rate is 6.49%. The payment on that loan would be about $1,570. In five years the payoff will be around $234,000.

Using today's average 15-year rate, which is 56 BPS better than the 30-year fixed rate, the monthly payment is approximately $2,090, only $520 more than the 30-year payment. More importantly, if the 15-year borrower decides to sell the property in five years, the payoff will be only around $189,700.

So for $520 more per month, the 15-year borrower saves 180 payments of $1,570 compared to the 30-year borrower. At the point the 15-year borrower pays off the loan, the 30-year borrower will still be left with 15 years. If both borrowers sell their properties in five years, the 15-year borrower will have about $44,300 more equity than the 30-year borrower.

Freddie said the average one-year adjustable rate mortgage (ARM) was 4.50%, down sixteen BPS from last week. The percentage of ARM applications was unchanged from last week at 18 percent, according to the latest survey from the Mortgage Bankers Association of America (MBA).

MBA, which surveys mortgage bankers, commercial banks and thrifts each week, said overall applications were down just over a percent from the prior week. While purchase applications were down 7.57%, refinances -- which made up 53.4% of total applications -- were up 4.31%.

Half of Bankrate.com's respondents, which include mortgage bankers, mortgage brokers and other industry experts, expect no movement in rates over the next five weeks. About a third expect rates to fall.

Bankrate.com's financial analyst, Greg McBride said, "Don't expect the two-month-long slide in mortgage rates to continue, as rates will remain rangebound barring any further accounting revelations or terror acts."

At 12:10 Central Daylight Time, the Dow Jones Industrial Average was down 274 point to 8,135.49, according to LionInc.com. The 10-year Treasury, is up 7/32 as its yield has fallen to 4.58%.

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