How low mortgage rates can help Phoenix homeowners

I've blogged a lot about mortgage rates but there is a reason - they are crazy low! Rates on 30-year fixed-rate mortgages hit an average of 4.3 percent last month, the lowest level since 1953. Fifteen-year rates are even more attractive, hovering around 3.8 percent. And, yes, these are averages meaning that if you have good credit, you may be able to lock in a rate that is a quarter of a percentage point lower.

Many potential home buyers and current homeowners often ask me, "that's great but how can I benefit?" So here are a couple of suggestions:

Go for a 15-year mortgage

According to Core-Logic, more than a quarter of borrowers today are choosing a 15-year mortgage. This is up from about 9 percent in 2007. Surprising, eh? It's because a 15-year offers about half a percentage point lower than that of a standard 30-year mortgage, plus you can save tens of thousands by retiring the loan in half the time.

That's great but I can't possibly afford a 15-year mortgage.

Maybe you can.

Here is an example: Hypothetically, you took out a $270,000, 30-year mortgage at 5.9 percent back in 2005 when you purchased your home. Based on these numbers, you would be paying about $1,596 a month in principal and interest with a $250,000 remaining balance on the mortgage.

To refinance this loan into a 15-year mortgage, you roll the $5,000 in refinancing costs into your new loan which is at 3.8 percent (i.e. so the loan is for $255,000). Your new monthly payment will only be $264 a month more at $1,860/month. Additionally, you can save nearly $150,000 in interest over the life of the loan.

Executive summary: the possibility may be closer to a reality than you think. It's worth checking out your options with your current mortgage lender and bank.

Invest in real estate

Ever considered a second home in Sedona or, perhaps, the Flagstaff mountains? Or maybe you're a snowbird looking for a winter home in Scottsdale? If you can afford another mortgage payment, now is a great time to buy. Mortgage rates are low and home prices are competitive.

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