Experts say that rates on 30-year fixed rate mortgages have gotten as low as they will go and have begun rising. In fact, the spread between the 10-year treasury rate and the 30-year mortgage, which is typically 1.7% if you don't pay any points, has increased to about 2%. But 15 year mortgage rates continue to drop--Today, 15-year mortgage rates are running about 1.3% above treasuries, close to .7 percent lower than 30-year fixed rates! Why is this happening?
One reason is the different type of borrower. Most borrowers who refinance to a 15-year mortgage are established homeowners who can afford to take on larger monthly payments and pay off their mortgages before they retire. They have more money, more equity, and often better credit. Lenders who have been burned in the recent foreclosure crisis want to add these homeowners to their portfolios to make them less toxic.
Those who who take out 30-year loans are generally less well established, and have smaller down payments and less income. Many of them are first time buyers. With so many jumping into the pool and trying to get their $8,000 tax credit before it expires, lenders have even less reason to do them any favors and lower rates at this time. When home prices have fallen, unemployment is up, and mortgage defaults show no sign of slowing, these borrowers are much less desireable.
So, if you can swing a refinance on a 30-year loan, you could find yourself on the red carpet yourself--even with little equity, FHA offers a 15-year refinance that could get you a very low rate and your home paid for fast.
