The average rate on a 30-year fixed mortgage was 7.11 percent and the 15-year average was 6.45 percent, according to Freddie Mac's weekly survey, released Nov. 12. The two rates sit 0.66 percentage point apart. What that gap means in dollars depends on more than the rate.
The latest averages
The 30-year average fell from 7.18 percent the week before. A year ago it was 6.24 percent. The 15-year average fell from 6.57 percent the prior week, and a year ago it was 5.49 percent.
"Mortgage rates dropped to their lowest level in seven weeks, a welcome development that gives borrowers greater flexibility as they navigate the current housing market," said Sam Khater, Freddie Mac's chief economist.
Freddie Mac publishes the survey weekly. The next one is due Thursday.
What the survey measures
The survey is an average for a particular kind of loan: a conventional, conforming, fully amortizing loan to buy a home, for a borrower who puts 20 percent down and has excellent credit.
That is a published market rate. It is not an offer. A lender quotes a rate to a person, based on that person's credit, down payment, loan size, property and the day the rate is locked. A borrower with a smaller down payment or a weaker credit record will often be quoted something different from the average. Fees and points are separate again.
An example on $300,000
The following is an example, not a quote. It uses the two survey averages as if a borrower could get each one exactly, on a $300,000 loan with fixed monthly payments of principal and interest. It leaves out taxes, insurance and fees. Figures are calculated from the Freddie Mac averages and rounded to the dollar.
At 7.11 percent for 30 years:
- Monthly principal and interest: $2,018
- Total paid over 360 payments: about $726,523
- Total interest: about $426,523
At 6.45 percent for 15 years:
- Monthly principal and interest: $2,605
- Total paid over 180 payments: about $468,915
- Total interest: about $168,915
In this example, the 15-year loan costs $587 more each month. Over the life of the loan, it costs about $257,608 less in interest.
Why the two numbers pull in different directions
Two things are happening at once. The 15-year rate is lower, so each month's interest charge is smaller. And the loan is paid off in half the time, so more of each payment goes to the balance, and the balance shrinks faster. Less balance outstanding, for fewer years, at a lower rate, adds up to much less interest.
The cost of that is the monthly payment. Repaying $300,000 in 15 years instead of 30 requires larger payments, even at a lower rate.
Neither column is the right answer on its own. One shows what a household pays each month; the other shows what it pays in total. Which matters more depends on the household's income, savings and plans, not on the averages.
The offer is the number that counts
The arithmetic above changes with any change in the rate. An actual offer depends on the borrower: credit, down payment, the loan amount and the lender. The survey averages are a place to start a comparison, not the rate anyone is promised.