How to find the lowest 15-year mortgage rate for your refinance as rates rise

Mortgage rates have zoomed in the last week to their highest levels since June. And while rates are still pretty low by historical standards, the spike has made the differences between the rates on 30-year and 15-year mortgage rates more pronounced.

The typical 30-year rate has popped back above 3%, while 15-year rates are still averaging in the low 2s.

In the days before COVID-19, 15-year mortgages — with their usually stiff monthly payments — were far too expensive for many people refinancing their homes. Borrowers often just grabbed another 30-year home loan, America's go-to mortgage.

But these days, the shorter-term option is more affordable. Here's how to determine if a 15-year fixed-rate mortgage is right for you — and how to land an ultra-low 15-year rate while they're still available.

Today's 15-year mortgages can offer big savings

Average rates on 30-year fixed-rate mortgages have climbed above the 3% line for the first time in weeks as financial markets have reacted to inflation and indications the Federal Reserve will soon start tapering its pandemic policies. Experts are generally forecasting considerably higher rates by the end of this year.

Mortgage giant Freddie Mac says 30-year rates jumped last week from 2.88% to 3.01%, on average.

But rates on 15-year fixed-rate loans are much cheaper — averaging 2.28%, which is still relatively close to the recent all-time low of 2.10%. And, it's not hard to find lenders offering 15-year fixed rates under 2%.

Let's be clear: Because of their shorter repayment period, 15-year mortgages will give you a much higher monthly payment than 30-year loans. But with the average 15-year rate near a record low, payments also will be among the lowest ever.

Here's an example of how you can save with a 15-year mortgage right now: In early August 2019, when the average for a 15-year fixed-rate mortgage was 3.20%, a $250,000 loan would have cost you $1,751 per month, or $21,012 a year.

But at the current average rate of 2.28%, that same loan will cost you $1,641 per month, or $19,692 a year — for annual savings of $1,320.

15-year mortgage vs. 30-year loan

Even better, the shorter-term mortgage will cost you tens of thousands of dollars less in total interest versus a 30-year loan.

If you were to refinance a $200,000 balance at the current average rates, your monthly payment would be $1,313 with a 15-year loan, but only $844 with a 30-year mortgage — a $469 difference.

That might be a deal breaker for some, but when you consider the lifetime interest you’d save with the shorter loan term, the high monthly payment isn't quite so bad.

The total interest you’d pay by refinancing into a 15-year mortgage at 2.28% would be more than $36,000, while you’d have to fork over about $104,000 in interest for the 30-year loan at 3.01%. That’s an extra $68,000.

Don’t forget that in addition to saving more than $68,000, you’d pay off your debt in half the time.

Why shorter mortgage terms have better rates

The average interest rate on a 15-year fixed-rate mortgage is usually lower than the average on a 30-year loan because shorter-term loans are generally seen as less risky by lenders.

However, since a 15-year mortgage requires a steeper monthly payment, the criteria needed to qualify for one is often stricter than for a 30-year loan.

You might ultimately decide the bar is too high and that you'll have to look for other ways to cut your housing costs — maybe by shopping around to find a lower rate on your homeowners insurance.

To land a 15-year mortgage, it may be necessary to raise your income above what you currently earn, reduce your debt-to-income ratio, or boost your credit score by 200 points or more.

How to find the best 15-year mortgage rate

To ensure you’ll get the best rate possible on a 15-year refi, you’ll want to check your credit score before you start looking for offers.

You’ll need a score in the "very good" (740 to 799) or "excellent" (800+) range if you want lenders to feel confident about working with you.

If you haven’t been keeping tabs on your score lately, that's OK — you can easily check your score for free online, then work on increasing it if it's too low.

Once your credit score is in good shape, you’ll want to shop around and compare quotes from at least five lenders to find the best 15-year loan offer.

Research from Freddie Mac has found that comparing five rates can save a borrower thousands of dollars over the life of a loan — so don't jump at the first offer you get.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.