Freddie Mac’s 15-year fixed rate ends in 2021 near all-time low – Orange County Register
Exactly six months after Freddie Mac’s 15-year fixed rate hit an all-time low of 2.1% on July 29, we end 2021 at 2.33%. That’s just 23 basis points higher and less than a quarter of a percent from its all-time low.
Compare that to Freddie’s 30-year fixed maturity in 2021 at 3.11%. The historic 30-year low was set for January 7, 2021 at 2.65%. That’s 46 basis points over or close to half a percentage point.
For the year, Freddie 15’s rate averaged 2.27% while his 30-year rate averaged 2.96%. That’s an annual average deviation of 0.69% or nearly three-quarters of a point.
In my experience in the long-term mortgage originator industry, the 15-year fixed rate is typically half a point lower than the 30-year fixed rate. Right now, the 15-year fixed rate is performing much better than historical mortgage data might indicate.
So why would these short term loans be so inferior to traditional long term mortgages?
Mortgage money works the reverse of the savings world of Certificates of Deposit, for example. A bank usually offers a higher interest rate if an investor is willing to tie up a CD for three years instead of just one. When it comes to home loans, the shorter the time period that you tie up a lender’s money, the better the terms the mortgage lender will typically offer. This is why 15-year mortgage money is always cheaper than 30-year mortgage money.
In my experience, most borrowers don’t think much about a 15-year fixed rate versus a 30-year fixed rate because real estate agents or mortgage originators ask for higher numbers. Industry compensation is almost always based on the size of the deal. More expensive homes and bigger loans mean bigger paychecks. Shorter-term mortgages with higher balances and higher payments create greater eligibility pressures for loans.
Everything today looks like a whip saw. Surprise is the new normal when it comes to calculating COVID and its impact on broader economic activity. It’s better. It’s worse. More people are dying. No more survivors. But the disease is skyrocketing. Locks. End of confinements. Bring back the mask warrants. But don’t you dare lock us up again. Here.
And as a result, the surprisingly low COVID-linked 15-year fixed rate mortgages are the new normal as well.
As well as saving an additional quarter point over historical behavior over 15 years, you’ll pay significantly less over time. And, you will have the mortgage holiday much sooner.
Today, we are about three-quarters of a difference on mortgage rates when comparing the 15-year and the 30-year fixed in the local market.
Consider that well-qualified borrowers (California rates tend to be cheaper than Freddie’s national averages) can grab a rate of 1.875% over a 15-year period set at 1.75 points. On an amount of $ 647,200 (the maximum loan limit consistent with Freddie in 2022), the principal and interest payment would be $ 4,128.
The total of 180 months of payments (15 years) is $ 743,040 with an additional $ 95,840. Compare that with a 30 year set at 2.625% with a cost of 1.875 points. This monthly payment of $ 2,599 multiplied by 360 payments (30 years) is an additional $ 935,640 or $ 192,600.
Yes, the 15-year monthly payment is approximately 60% higher than the 30-year payment. Yes, over time there are less tax deductible dollars over the 15 years because you are paying a higher interest rate and borrowing longer term money over the fixed 30 years. Yes, I’m going to get a lot of emails from columnists telling me that it’s smarter to leverage money by investing in real estate, bitcoin, or the stock market.
I have been preaching to my clients for over 35 years to pay off their mortgages as fast as they can. This is one less surprise for your retirement budget. I’m not changing my advice for you now – especially when you can earn another quarter point on the cheap.
Freddie Mac Rate News
The 30-year fixed rate averaged 3.11%, up six basis points from last week. The 15-year fixed rate averaged 2.33%, up three basis points from last week.
The Mortgage Bankers Association did not report the volume of mortgage applications as it was closed for the holiday week.
Bottom line: Assuming a borrower gets the 30-year average fixed rate on a compliant loan of $ 647,200, last year’s payment was $ 152 less than this week’s payment of $ 2,767.
What I see: Locally, well-qualified borrowers can get the following fixed rate mortgages without points: a 30-year FHA at 2.49%, a 15-year conventional at 2.275%, a 30-year conventional at 3 %, a 15 -a conventional high balance over one year ($ 647,201 to $ 970,800) at 2.375%, a conventional high balance over 30 years at 3.125% and a 30-year jumbo set at 3%.
Note: The 30-year FHA Compliant Loan is limited to loans of $ 562,350 in the Inland Empire and $ 647,200 in Los Angeles and Orange counties.
Eye-catching loan program of the week: A 15-year fixed at 2.625% no charge.