It’s a good time to look at the 15-year fixed rate mortgages.

As compared to 30-year fixed rates, the relative discount for “going 15″ is big. Interest rate spreads between the benchmark borrowing products haven’t been this high since 2004.

But there’s more to it than just the rates.  The 15-year and 30-year fixed rate mortgages each have their benefits and, because of that, interest rates can be sometimes irrelevant.

For example, assuming a $250,000 mortgage at today’s rates, the lifetime interest costs on a 15-year mortgage are $142,000* less than a comparable 30-year fixed rate mortgage.  That’s pretty significant, but is that the whole story?

The associated 15-year fixed mortgage’s monthly payment registers 41 percent higher than the same 30-year’s.   Big payments like that can break a family’s budget — no matter how low the rate.  Of course, the bigger the loan, the bigger the difference.

Furthermore, low rates don’t matter much with respect to mortgage planning.  There’s a few sounds reasons you may want to pass over the 15-year in favor of a 30:

1. The 15-year mortgage’s tax benefits are relatively tiny
2. There’s opportunity cost in rapidly converting liquid cash into illiquid home equity (opportunity would be, could you earn more on the money than it costs you in interest)
3. In the event of an emergency, you still have to make the larger, 15-year payment (probably one of the biggest drawbacks)

Low rates are tempting, though, and when the spread between the 15-year fixed and 30-year fixed is as big as it is today, the arguments made above lose their weight.  The ultimate test is a gut check.  Does having your mortgage paid off sooner with less interest ‘sit right’ with you?  If it does, no amount of number crunching it going to deter you.

One thing to remember is that mortgage rates change everyday and the delta from product-to-product is far from linear.   The chart at top proves it.   So, if you’re not buying a home for another few months, don’t settle in on a strategy just yet.

Know your options, until you are ready to buy that new home.

For help with your mortgage planning needs, feel free to call or send me an email.

*Based on $250,000 borrowed at 5% over 30 years compared to $250,000 at 4.375% over 15 years.