Differences Between FHA & Conventional Mortgages
Updated: Jun 12
Many homeowners in the United States who wanted to refinance before the pandemic could not choose 15-year mortgages because they were too pricey. More manageable monthly costs drew them to the other common fixed-rate mortgage (FRM), a 30-year FRM.
The 15-year FRM has been mounting a comeback, though. Research from the Urban Institute found that while these loans made up just 10.2 percent of home loan applications in September 2019, they rose to 17 percent of applications in September 2020.
Why are so many US consumers choosing the shorter-term mortgage – even during a pandemic? These families are simply able to handle the 15-year mortgages with the mortgage rates still near historically low levels. If the rates begin to tick upward a bit throughout the spring and summer, 15-year refinances will still be appealing to millions.
Common mortgages down 0.31 and 0.39 percent YOY
When you look at the housing market and mortgage data, it is important to have a long-term picture. See the Freddie Mac Primary Mortgage Market Survey (PMMS), which tracks industry averages for the three core mortgage types.
Mortgages may be headed up from their record lows. Yes, the 30-year fixed-rate mortgage rose 0.05 percent week-over-week (WOW) two weeks ago and 0.03 percent WOW last week. And yes, the 15-year FRM rose 0.04 percent last week, as did the 5/1 adjustable-rate mortgage (ARM).
However, keep these facts in mind as well:
The 30-Yr FRM is down 0.31 percent year-over-year.
The 15-Yr FRM is down even more, 0.39 percent, year-over-year. Plus, it remained level WOW at 2.34 percent two weeks ago.
The 5-Yr ARM is down less dramatically YOY, 0.24 percent. However, it dropped significantly WOW two weeks ago, falling more than a quarter-point from 2.99 to 2.73 percent.
Short-term payoff: avoid paying 2.8 times the interest
An analysis published by Yahoo Finance is not up-to-the-minute but is recent enough that it provides a decent sense of monthly payments and interest on the two loan types. Published February 28 when the 30-year and 15-year rates were 2.97 and 2.34 percent, it looked at a $200,000 mortgage refinance:
30-year FRM – $840 monthly payment; $102,400 interest over life of the loan
15-year FRM – $1,319 monthly payment; $37,000 interest over life of the loan.
Yes, choosing the 15-year means you do have to commit an extra $480 toward the mortgage. However, it also means you avoid paying 2.8 times the interest!
Getting Great Rates Fast
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