Comparing Payback Periods on 30, 20 and 15 Year Fixed Mortgages

On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal.

This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won't occur until late in the mortgage's lifecycle.

Comparing products at a 6% mortgage rate, did you know that after 15 years:

A 15-year mortgage will be paid in full
A 20-year mortgage will have 41.21% of its loan balance remaining
A 30-year mortgage will have 73.19% of its loan balance remaining
Of course, this doesn't mean that 15-year mortgages are better than their 20-year or 30-year brethren. It just means that 15-year mortgages pay off faster.

Yet, there are reasons for homeowners to avoid 15-year mortgages.

For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time frame. In addition, mortgage interest tax deductions to which most homeowners are entitled are reduced on a 15-year product.

So, just because the 15-year pays off quickly doesn't mean that it's best for everyone.

What You Need To Know About Mortgage Rate Quotes

Home buyers are often surprised when a "rate quote" from the morning won't be honored in the afternoon. Sometimes, the assumption is that the loan officer is just being sneaky.

This couldn't be less true.

Rate quotes change in the middle of the day because mortgage markets are in constant flux. All day, every day -- just like stocks.

And like stocks, a mortgage bond's morning price will likely "expire" before the day ends.

One way to visualize this is to look at today's Microsoft's stock price:

At 9:30 A.M. ET, the price was $28.46

At 9:38 A.M. ET, the price was $28.72

Over the course of 8 minutes, the stock rose by 26 cents and the "9:30 A.M. quote" was no longer available. For example, you couldn't call your stock broker at 9:38 A.M. and place an order for the 9:30 A.M. price because the price had changed.

Mortgage rates behave the same way.

Throughout 2008, mortgage rates have changed mid-day more frequently than in the past. On more than half the days, morning rate quotes were no longer valid in the afternoon. And, on at least 5 separate occasions, rates changed 4 times in just one day.

It's not typical, but it does happen.

So, if you're talking with your loan officer in the morning about a rate quote, be prepared to do all of your shopping in a compacted amount of time, and then be ready to make a decision.

By the time the afternoon rolls around, after all, that rate quote may well be expired.

Did You Ask: "Has There Been A Mortgage Rate Reprice In The Last Hour?"

Yesterday, several mortgage lenders issued three separate "rate sheets" in response to the changing mortgage market.

It was the fourth time in the last 6 trading days that mortgage lenders issued multiple rate sheets in a day, and continued the trend that started in mid-January.

The yo-yo nature of mortgage rates underscores the importance of making mortgage rate comparisons within a limited time frame.

Multiple quotes should be gathered with an hour of each other and, even then, it's prudent to ask your lender: "Has there been a mortgage rate reprice in the last hour?"

The current market volatility is in contrast to the "normal" environment of one-rate-sheet-per-day to which mortgage rate shoppers have been accustomed. But with the changing economy, we all have to adapt.

Mortgage rate quotes from this morning won't necessarily be valid this afternoon so if you're in the market for a home loan, be sure to do your shopping in a limited timeframe and don't forget to ask about the reprice.