PARAMOUNT MORTGAGE - LENDER'S BLOG

(CNN MONEY) — Rates on 30-year fixed-rate mortgages (excluding jumbos) hit an average of 4.24% last week. Rates are at the lowest levels since 1953, according to Freddie Mac.

Fifteen-year rates are even more mouthwatering: 3.62%. These are nationwide averages and are subject to change. The most creditworthy borrowers can do even better, snagging rates perhaps a quarter of a percentage point lower.

You might use these crazy-low rates to refinance and shorten your mortgage term, free up cash, or even buy a second home or investment property.

However, good things don’t last forever. "The consensus is that rates will gradually move up in the next year," says Frank Nothaft, chief economist for Freddie Mac. Freddie projects that the average 30-year fixed will hit 5% by the end of 2011.

Get mortgage-free relief sooner

Refinance your 30-year loan into a 15-year loan. A quarter of all borrowers are choosing a 15-year mortgage, according to analytics firm Core-Logic, up from about 9% in 2007.

A 15-year loan lets you save in two ways: You get a rate that's around half a percentage point lower than that of a standard 30-year, plus you can save tens of thousands by retiring the loan in half the time.

Improve cash flow

If freeing up cash flow is a priority, choose a 30-year loan.

Take the typical example of a $200,000 home purchased five years ago in 2005 with a 5.9% rate and a present monthly principal and interest of $1,127. If you refinance your remaining balance of $190,003 along with a couple thousand more to cover fees at last week’s low average rate of 4.24%, you’ll lower your monthly principal and interest from $1,127 to $943.

Lowering your monthly payment by 16% is a good move even though your Interest savings won’t be as much as with a 15-year loan. But that's not so bad as long as you do something smart with the extra $184 a month you'll save.

Double down on real estate

Do your retirement plans call for moving to a house near the beach or a cabin in the mountains? If you can afford another mortgage payment, you may want to start your search now, while rates are in your favor and prices are depressed.

Assuming you're buying the place as a true second home, lenders generally charge the same rate they would for a primary residence.

But if you intend to rent the place out, and you need rental income to qualify for the mortgage, it's considered an investment property. Mortgage rates on investment properties are around a half to full percentage point higher.