Remember all the excitement when 30-year mortgage rates started dipping below 3% for the very first time a few weeks ago? Just as those low-cost loans are almost starting to become ho-hum, one of the nation’s largest home lenders is out with a shorter-term mortgage that takes rates into a whole new universe.
United Wholesale Mortgage — a company that earlier this year announced 30-year fixed mortgage rates as low as 2.5% and VA loans for veterans and service members at just 2.25% — has just introduced a 15-year loan with rates under 2%.
Rates that are way below average
Mortgage rates have been plummeting to record lows in 2020 as the coronavirus crisis has shaken up financial markets and caused the Federal Reserve to slash interest rates to the bone.
Thirty-year fixed-rate mortgages this weekend are averaging 2.87%, according to Mortgage News Daily, tying its survey’s all-time low.
But UWM’s new 15-year fixed-rate mortgages come with rates as low as 1.875%. That’s unprecedented — and way down from the national average for those loans, currently 2.51% according to mortgage company Freddie Mac.
A 15-year home mortgage “is a great vehicle for refinancing. A lot of people look at it as a way to cut years off their mortgage,” says Mat Ishbia, president and CEO of United Wholesale Mortgage.
A homeowner who’s had a 30-year mortgage for a number of years can refi into a 15-year loan and avoid stretching out interest costs for additional decades.
Mortgage rates with shorter terms tend to have lower rates but much stiffer monthly payments. The rate on the UWM 15-year loan is so low that some refinancers may not find a major difference in their mortgage payments when switching out from a 30-year loan.
The math on a low-cost mortgage
Here’s how that works: Let’s say you took out a 30-year, $250,000 mortgage five years ago at 5%. (Clearly you didn’t do enough comparison shopping, because rates were averaging about 4% in the summer of 2015.)
You’ve been paying $1,342 in principal and interest each month and have close to $230,000 left on your loan.
Refinancing that balance into a 15-year mortgage at 1.875% would give you a monthly payment of $1,466, just $124 more than you’re currently paying. And your interest savings would be huge.
The 15-year loan comes with lifetime interest costs of about $34,000. If you refinanced into a new $230,000, 30-year loan at, say, 3% and stayed with the mortgage through the end of its term, you’d pay total interest costs of $119,000. The difference is massive.
Then again, the new 30-year fixed-rate mortgage would have a monthly payment of just $969, substantially less than the 15-year option.
Are all the numbers starting to make your head spin? Think of it this way: The sharply lower interest costs make the 15-year loan a good refinance choice if you plan to stay in the house for the long haul. A 30-year refi loan, with its lower monthly payment, is better if you might be moving on in a few years.
How to get a dirt-cheap 15-year mortgage
The new low-rate 15-year mortgages are part of UWM’s Conquest program, same as the lender’s ultra-cheap 30-year conventional and VA loans.
“Over 90% of our loans are in the 1% or 2% percent range and we’ve had a massive response for both purchases and refinances since we launched the Conquest program back in May,” says Ishbia.
Like the name says, United Wholesale Mortgage is a wholesaler, so you can’t get a mortgage directly from UWM. The loans are offered only through independent mortgage brokers, to both homebuyers and refinancers.
The program has a stipulation that a borrower cannot have taken out a UWM loan within the last 18 months.
As always, you’ll find the best mortgage rate based on your credit score and situation by shopping around throroughly for your loan.
Be sure to take a similar approach when you buy or renew your homeowners insurance. Get quotes from several insurers and look at them side by side, to find the right coverage at the lowest price.