Hot July mortgage rates show no signs of cooling

House on rate chart

We started 2012 with record-low interest rates, and home financing has only gotten cheaper.

But just how far have interest rates fallen during the first six months of the year?

The average 30-year home loan began the year at 4.18%. At the beginning of July, it had settled to another low of 3.87%.

The six months of declining rates result in a difference of almost 18 bucks a month -- each month for 30 years – on every $100,000 you finance.

If you waited until now to buy or refinance, that adds up to thousands or tens of thousands of dollars in saved interest payments over the life of the loan.

Our weekly chart of average rates shows how much you’ll pay for the typical home loan in 25 major metropolitan areas.

Use our weekly chart to get a sense of what you should be paying for a home loan.

Then search our extensive database to find the best mortgage rates from hundreds of lenders.

In several big cities, the most qualified borrowers will find 30-year fixed rates as low as 3.5% with no points and less than $2,000 in lender fees.

Whether you want to buy or refinance, see what your monthly principal and interest payments would be on any fixed-rate loan with our mortgage calculator.

A traditional 30-year, fixed-rate loan is the most popular with consumers because it offers both low monthly payments and predictability.

But you might be surprised to learn that with today’s low rates, you can afford a 15-year mortgage.

Right now, the difference between an average 30-year and 15-year loan is about three-quarters of a percentage point.

A 15-year loan will save you thousands of dollars over the term of your loan.

At today’s average rates, for every $100,000 borrowed, going from a 30-year loan to a 15-year loan would only increase your monthly payment by about $227. And it would save you about $44,000 in interest in the long run.

You’ll find 15-year rates in our database for as low as 2.75%.

While a shorter term means a higher monthly payment compared to a 30-year loan, don’t assume you can’t afford the payments until you do the math.

Use our 15 years vs. 30 years mortgage comparison calculator to compare your payments and the total interest you'll pay over the life of the loan.

If the difference in monthly payment between a 30-year fixed and a 15-year fixed is only a small stretch for you financially, it’s probably worth the effort.

A 15-year loan can put you in a better position to afford other major expenses, like retirement or your children’s education.

Choosing a shorter term can make even more sense if you’re refinancing.

Since you’ve already paid down part of the principal you owe, you’ll be borrowing a smaller amount under your new loan. The combination of a smaller principal balance and a lower interest rate might make a shorter-term loan a viable option.

But if you’ll struggle to make the payments on a 15-year mortgage, go with the more comfortable 30-year option. Owning a home shouldn’t mean putting your finances in jeopardy.

You can always make extra principal payments as you can afford them. You’ll still pay off your loan early and achieve significant savings.

"The 30-year choice provides some flexibility in these uncertain economic times," says Christopher Davis, director of communications and retirement services for HFM Wealth Management in Hartford, Conn.

But how many people have the discipline to make extra payments?

"Many clients take out 30-year loans, promising themselves to pay extra towards the principal in good times," says Doug Thorburn, an enrolled agent and certified financial planner in Van Nuys, Calif. "I tell them, they won't do it. Yes, there are exceptions, but in my experience they are few and far between."

He says that if the 15-year loan is affordable, buyers should make the decision up front and save the money. But that decision should be weighed very carefully.

"Borrowers should take 15-year and not 30-year loans when they are reasonably certain they will be able to afford the additional payment for the duration of the loan. If not, don't risk it," Thorburn says.