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Posted: 6:00 a.m. Tuesday, June 18, 2013

Save big money on your mortgage

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By Clark Howard

ClarkHoward.com


Looking for the sweet spot of the mortgage market? Shorter-term mortgage loans are growing in popularity.

10-year mortgages are getting some real mojo in the marketplace. They now represent one fifth of the entire mortgage market. The key demographic for 10-year mortgages are the Baby Boomers who are refinancing into these shorter-term loans.

What kind of interest rates can you get? As of this writing, 10-year mortgages can have rates of 2.375% up to as much as 3% at the high end. Compare that to 30-year refinances in the 4% range.

15-year loans are another great mortgage option. They're now enjoying the largest historical spread -- right around a full interest rate point -- versus traditional 30-year notes.

I've long said if you can't afford the car payments on a 42-month car loan, you're buying too much car. Well, I'm now this close to saying if you can't afford the mortgage payment on a 15-year loan, you're possibly buying more home than you can afford. It's just something to think about.

On the refinance side, the 10-year notes are compelling because they start at 2.375%. With rates that low, you're paying at roughly the rate of inflation -- meaning you're borrowing money for free!

If you're looking for a 10-year mortgage, go to a local bank or credit union. They specialize in these loans and tend to keep them in portfolio for the life of the loan, making the whole process a lot easier.

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