Although the 15-year mortgage is invariably cheaper than the 30-year variety, it often gets little respect because of its larger monthly payments. Not so today. The 15-year deal is, in fact, quite appealing, offering substantial savings through rock-bottom rates.
Among the ideal candidates are homeowners who have plenty of equity and want to refinance at a lower rate. For them, the higher-principal payment on the 15-year deal may be easy to bear, allowing the borrower to focus on the low, low interest rate.
A BankingMyWay.com survey shows the average 15-year mortgage charging a scant 3.164 percent, versus 3.788 percent on the average 30-year loan.
The 15-year loan generally charges half to three-quarters of a percentage point less than the longer-term loan. But when the rates are this low, that margin is especially beneficial because it is bigger in relation to the overall rate.
At 3.164 percent, the 15-year loan charges 16.5 percent less than the 30-year deal. In June 2007, before the financial crisis, the 15-year charged 6.4 percent and the 30-year 6.73 percent. The 15-year, therefore, charged only about 5 percent less.
When the difference is very small, as in 2007, the 15-year loan does not provide enough savings to offset the big disadvantage: the larger monthly payment required to pay off the debt, or principal, in 15 years instead of 30. But today's large margin relative to the overall loan rate can tip the balance in favor of the 15-year deal, so long as the payment is affordable.
At 3.164 percent, you would pay just under $700 a month for every $100,000 borrowed. While that is significantly more than the $465 you would pay to borrow for 30 years at 3.788 percent, the 15-year deal would dramatically cut interest charges over the life of the loan -- to $25,729 versus $67,500 for the 30-year deal.
This makes 15-year loans especially attractive as a refinancing option for homeowners whose debt is not terribly large -- people who have owned their homes for a number of years, for example.
In fact, financial experts generally recommend that in a refinancing, the borrower keep the term on the new loan to no longer than the time remaining on the old one. Otherwise, the savings from a lower rate will be offset by additional years of interest payments.
Is there a downside to the 15-year deal? As mentioned above, you'd pay about $235 more a month for every $100,000 borrowed. That's not really money out of your pocket because it is a principal payment that reduces your debt. In other words, you would build equity in your home faster.
That $235 could go to other purposes, though. If you found an investment that could return more than the interest rate on the loan, it might make sense to invest instead. Payments toward mortgage principal can be thought of as a fixed-income investment with a yield equal to the mortgage rate. These days, earning more than 3 percent on a guaranteed investment is not bad, but someday it could look stingy.
"With all the Fortune 500 companies located here there are quite a lot of high-salaried individuals," said Shaun Bond, a professor of finance and real estate at the University of Cincinnati. "And the Midwest housing market has always been more affordable; there are fewer constraints on growth."
With median income at more than $71,000 a year, workers earn about 10 percent more than the national median. Meanwhile, median home prices have never exceeded $148,000, according to the NAHB.
"We don't have the kind of volatility in income or home prices that cities with more concentrated industries have," said Bond.
In the 20th century, Akron's economy grew in lockstep with the auto industry.
"It was the big rubber capital," said University of Cincinnati professor of finance and real estate Shaun Bond. Tens of thousands of local area residents went to work each day in the plants of Firestone, Goodyear, Goodrich and other tire manufacturers.
With factory jobs harder to come by, the Akron metro area has become a slow growth zone. The population has only increased by less than 7 percent since 1990, a period when the U.S. population soared by about 26 percent. Even favorite son LeBron James split town for fancy Miami.
And home prices are depressed, down 22 percent from their 2007 peak, according to NAHB. With family income just above the national median and such beaten down prices, most families can easily afford to buy a place.
Syracuse University, with its 20,000 students and 1,500 faculty members, helps keep the area's economy humming. Teachers, nurses and bank clerks far outnumber factory workers these days, according to the non-profit Syracuse Economic Development Corporation.
That has helped push the area's median income to a level that is slightly higher than the national average.
All of those jobs are not doing much to attract new residents, however. In fact, the metro area has seen less than a 2 percent increase in population since 2000, compared with nearly 10 percent nationally. As a result, there's very little competition for housing.
Those factors combined make buying a home in Syracuse very affordable. The current median home price of $106,000 is only 60 percent higher than the annual median income of a typical family.
Ogden's population has been rapidly expanding, thanks to the large families of Mormons that reside here, according to Jaren Pope, an economics professor at Brigham Young University.
Pro-business policies have attracted many private employers, such as FJ Management, an oil services company, Convergys, a business consultancy, and Autoliv, an automotive safety systems company, all of which are based in Ogden. And there's also the IRS, which runs a big facility with 5,000 workers.
A high growth rate, in both the population and the economy, isn't usually a recipe for affordable home prices. Indeed, home prices in Ogden slightly exceed the national median.
However, Utah's pro-business policies also extend to real estate developers. And, as a result, home building can be done much more economically.
The biggest problem in Ogden is finding land to build on since the town runs up against the Wasatch Mountains, said Pope.
Still, with the median home price at $166,000 and incomes high here, Ogden is one of the most affordable of all western markets.
A world away from the Big Apple -- one of the most expensive housing markets in the nation -- Buffalo is the most affordable major metro area to buy a home in the state of New York.
Part of the reason is that demand for housing is very low. The area's population has shrunk by about 5 percent since 1990 as its Rust-Belt manufacturers either closed shop or laid off workers.
As a result, demand for housing is very low -- and home prices reflect that. The median home price in Buffalo was only $94,000 for homes sold during the first three months of 2012, according to the NAHB. That's far below the national median of $162,000.
Fortunately for home buyers, incomes aren't as depressed. The median income here is at just about the national level, making it very affordable to buy a home.
As in many once-booming Midwestern cities, Grand Rapids was built up during an era of prosperity and high population growth. Now it's left with a large inventory of fine, old houses that are weighing on home prices.
In addition, several local non-profits are working to save area neighborhoods by renovating older homes and renting them out or reselling them, said Kara Wood, the city's director of economic development.
With population growth slowing over the past few decades -- the metro-area population grew at about half the national rate over the past 10 years -- there's more than enough homes to meet buyer demand.
Meanwhile, the city's economic base, which once relied heavily on the furniture-making industry, has become more diversified. Health care is now a driving force in the local economy, said Wood.
And there are plenty of good-paying jobs. Spectrum Health, which runs several hospitals in the area, employs more than 16,000 local residents, plus 1,500 physicians.
Modesto would make the perfect poster child for California's housing bust.
Construction and home prices both boomed prior to the 2006 peak, as buyers sought homes that were cheaper than those on the coast, according to Daren Blomquist, a spokesman for RealtyTrac.
"People bought there even though they worked far away, closer to the coast," he said. "They were willing to make that commute to get lower prices."
Much to those buyers' dismay, once the bubble burst the prices kept falling. Home prices in Modesto have sunk 67 percent from their 2005 peak to the current median of $127,000, almost $40,000 below the national level.
Foreclosures still plague Modesto. The metro area had the second highest foreclosure rate in the nation during the first quarter of 2102, with foreclosure paperwork filed on one out of every 60 homes, according to Blomquist.
Meanwhile, the unemployment rate stood at a very high 17.4 percent in March, more than twice the national rate. Families with working members, however, can easily afford the beaten down home prices in the area.
Located on an interstate highway between Tampa and Orlando, Lakeland's residents are used to people just passing through. But those who decide to stay don't find it very difficult to afford a place.
While both home prices and incomes have been hit hard here over the past several years, the decline in home values has far surpassed falling wages, said Ken H. Johnson, professor of real estate at Florida International University.
Home prices have fallen 58 percent since the housing bubble burst, to a median of $85,000. Taxes are also low. With today's low interest rates, a family who buys a house at the median price and puts 20 percent down would have a monthly payment of under $400, including taxes.
Meanwhile, the jobs picture is improving. Long a pit stop for travelers, Lakeland has recently become a destination, thanks to the opening of the Legoland theme park in October.
Legoland now employs 1,000 people. And a water park just opened this month, which should create even more jobs. That should help to further improve the unemployment rate, which fell to 9.5 percent in March, down from 11.3 percent the year before.
Dayton is shrinking -- or at least its population is.
The metro area lost about 1 percent of it residents over the past 11 years as businesses, like NCR Corp., moved out of town and others cut staff.
While that hasn't necessarily been a good thing for the local economy, it has kept homes extremely affordable. Since there's such an ample supply on the market, home prices have come down significantly. The median home price in Dayton is currently $81,000, about half the national level, according to the National Association of Home Builders.
Luckily, the employment picture is improving, too. The unemployment rate fell 1.2 percentage points over the past year to 8.2 percent, close to the national rate.
From its mainly manufacturing roots, the state's capital has greatly diversified, attracting employers in the health care, pharmaceutical and retail industries. Even tourism has become a big industry here, as sporting events like the famed Indianapolis 500 and the NCAA basketball championships draw crowds each year.
All of that has helped Indianapolis' population bring in a median income that is on par with the nation's as a whole. Housing, however, is much cheaper than the national average, making it a lot more affordable for local residents to buy.
Helping to keep prices down is the fact that there is so much room to grow. "There's an ample amount of land available for housing development any time there's a rise in demand for housing," said Kyle Anderson, a professor of economics at the Kelley School of Business of Indiana University.