Why 15-year mortgage rates are down more

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If interest rates on 15-year fixed mortgages have never been lower -- and rate trackers say that’s the case -- why aren’t 30-year loans setting records as well?

To be sure, 30-year fixed rates have fallen near all-time lows, well below 5% for borrowers willing to pay some upfront fees known as points -- a great deal if you’re among the lucky borrowers who qualify. But they were lower still last spring, according to surveys by the Mortgage Bankers Assn., Freddie Mac and bankrate.com.

By contrast, all the surveys concur that rates for 15-year fixed mortgages have already reached their lowest point on record -- and keep falling.

Freddie Mac, for example, says 15-year rates fell to record territory the week ending Sept. 17, when they averaged 4.47%. They have continued falling in three subsequent surveys, including the one for the week that ended Thursday, when they averaged 4.33% for borrowers who paid on average 0.7% of the loan balance in points.

Greg McBride, a senior financial analyst, says you can see the difference in the ‘spread’ between mortgage rates and the benchmark 10-year Treasury note.

Historically, interest rates for 30-year fixed home loans for borrowers who don’t pay points have run about 1.7 percentage points above the yield on 10-year Treasuries. Rates on 15-year loans with no points have run about 1.3 percentage points higher.

These days, 15-year mortgage rates are close to their historical norm. (McBride says those borrowers were averaging 4.6% on their loans, while the 10-year Treasury was at 3.25% Thursday.)

But 30-year borrowers are paying 2 full percentage points more, he said -- significantly higher than the historical average.

So what’s the difference? One reason is the different type of borrower.

The main users of 15-year loans, McBride said, are established homeowners refinancing mortgages -- people secure enough that they often take on larger monthly payments in order to pay off their loans before they retire. Lenders appear willing to apply the old rules to these borrowers.

People who take out 30-year loans, by contrast, are generally less well established, with smaller down payments, and require a bigger slice of their incomes to make their payments.

At a time when home prices have fallen, and unemployment and loan payment delinquencies continue to rise, such borrowers are just plain higher-risk. And the credit crunch remains real, McBride said -- the banks just don’t want to take chances in this environment.

Hence, no fresh record lows just yet for the 30-year loan.

--E. Scott Reckard