A 15year fixed rate mortgage is NOW worth considering

Mortgage broker: Liz Bayer, ProMortgage.

Property type: Singlefamily home in Tiburon.

Appraised value: $995,000.

Loan amount: $387,500.

Loan type: 15year fixed.

Rate: 2%.

APR: 2.26%.

Backstory: Even though 15year fixed conventional loan rates are typically lower than 30year fixed, I generally caution my clients that they will have a higher payment obligation than if they took a 30year term loan.

Mathematically, there is significant savings by going with a 15year fixed.

However, there is some risk to the borrower in the event they were to incur a hardship (like loss of income, health issues driving high outofpocket expenses, etc.) that would make it tough to make the higher 15year fixed payment.

And as many people know, there were many who were laid off due to COVID19 and while the stimulus plan allowed for mortgage forebearance, this option, under normal circumstances, is not available to a borrower who suffers a hardship.

However, given that rates have gone up recently on a 30year fixed, a rate in the 2 percents for a 30year fixed is less available than it was just a short couple of months ago.

My borrowers wanted to get a low rate and 15year fixed is still available in the 2s so, we were successful in locking the 2% rate that will position my borrowers to be ‘mortgage free’ nine years faster than their current mortgage, which sets them up perfectly for their ‘golden years’.

And, the refinance will save them $134,000 in lower payments compared to their current mortgage. Additionally, we were granted an ‘appraisal waiver’ which provided for a speedier closing and saving the borrowers the cost of an appraisal. This waiver was a maneuver by submitting the loan with a value of $995,000 even though the more realistic value is likely about $1.4 million because the Federal Housing Finance Agency has an incredibly STUPID policy that an appraisal would be required if the value is more $1 million. To get around this, we pushed the value below this cutoff to improve our odds of getting the waiver. Sorry for the rant, but generally FHFA guidelines (Fannie Mae/Freddie Mac) typically have rules in place to reduce their risk.

In the case of the waiver only being allowed if value is under $1 million, I see property values over $1 million being a LOWER risk for these agencies, NOT a higher risk, hence my comment that this is a stupid rule.