15-Year Fixed Mortgage: Pros and Cons

If you’re stuck in a 30-year mortgage with high interest rates, the gains you make by refinancing to a 15-year fixed-rate mortgage make it a no-brainer. In case it’s not obvious, we don’t think you should ever get a mortgage 15 yr mortgage rate term longer than 15 years. But with a 30-year loan, you pay more toward interest annually (and less on the principal) for the first several years of the loan, which means you build equity at a much slower pace.

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• But over time, mortgage rates on adjustable rate mortgages increase and so do the monthly payments the homeowner has to make.
• Christian Allred is a freelance writer whose work focuses on homeownership and real estate investing.
• Rate assumes a $300,000 loan amount, 80%LTV with a credit score of 740+.
• The 30-year fixed buyer would have less than $20,000 to play with…factor in costs to sell the home and it might not be enough to buy a replacement home.
• Before joining Bankrate in 2020, I spent more than 20 years writing about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
• You’ll also build equity more quickly, which you can then access using a home equity loan, HELOC, or cash-out refinance.
• That’s why it’s important to compare mortgage rates before committing to working with a specific lender.

You spend some time reviewing your financial situation and deciding whether a shorter term is the way to go. Maybe you’re confident in your job stability and the prospect of an upcoming promotion or two in the next few years. Additionally, you have little to no debt and have no problem cutting back if things get too tight with your budget. The advantage of a shorter-term loan is that you’ll spend much less on interest once you pay off your home. It could even be hundreds of thousands of dollars, depending on where you live and your loan amount. That’s a lot of money you get to keep instead of giving to a bank.

You pay off your home 15 years quicker.

This could be a problem to some, especially if you need additional square footage, or have your heart set on a specific neighborhood. Bottom line is that you never want to sign up for a mortgage term you cannot afford. Consider the following pros and cons to determine whether a 15 year fixed mortgage could work in your favor. Owning a home may feel like it simply provides one of your basic needs. However, homeownership is one of the most popular forms of investing in the U.S. and is often understated as a way to build wealth that can be passed on to future generations. Paying off your loan in the shortest amount of time will be the quickest way to maximize this equity growth and remove one of the most significant debts from your financial profile.

Frequently asked questions about Fixed Rate Mortgages

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Check out the latest rates to see how today’s 15-year mortgage rates and 15-year refinance rates compare. A safe rule is that housing shouldn’t take up more than 30% of your monthly budget. Calculate how much money you can afford for housing each month and don’t exceed it.

Down Payment Options for a 15-Year Fixed-Rate Mortgage

Due to the inversion, it is actually better value to borrow at longer durations given rates are relatively lower. Hence, all the more reason to lock in a 15-year fixed rate mortgage or 30-year fixed rate mortgage. Ever since I purchased my first property in San Francisco in 2003, I’ve actually preferred adjustable rate mortgages (ARMs). I preferred an ARM over a 30-year fixed mortgage because the interest rate was always lower. But the big benefit of the mortgage fully amortizes across a 15-year duration is that you will likely pay off your mortgage in 15 years, if not sooner. Whereas for folks who take out a 30-year fixed mortgage, there’s a tendency to take the full duration.

The advantages of 15-year mortgage rates

By clicking Continue, you will be taken to a third party website. Third party websites are not operated by Banner Bank, and may not follow the same privacy, security or accessibility standards as those of the Banner Bank site. Keep in mind that mortgage interest is tax deductible up to $1 million of the principal balance, so even if the interest is high, you can grab some tax breaks out of it. We recommend evaluating this with one of JVM’s experienced refinance specialists to weigh the pros and cons for your exact situation. How much they fall depends on the economic outlook and how much the Federal Reserve ends up lowering the federal funds rate. Mortgage rates are expected to fall next year, but how much they go down depends on where the economy goes.

Less Money Going Towards Savings Or Other Investments

But at an average discount of 0.5%, it is too wide of a spread not to pounce. Instead of buying a $1,200,000 home with a $1 million mortgage, the household buys a $1,000,000 home with an $800,000 mortgage. If the house appreciates by 5% over one year, the household loses out on $10,000 in appreciation by buying the cheaper home. Over a 10-year period, the household loses out on a significant $125,778 in appreciation/equity. With a 15-year mortgage, you can be the most unfocused person.

Get pre-qualified for a mortgage

• Some lenders even give borrowers the option to customize their term length to their needs.
• Talk to the RamseyTrusted® home loan specialists at Churchill Mortgage about getting a 15-year mortgage that fits your budget so you can pay off your home fast.
• Another important reason as to why you might want to opt in to a 15 year fixed term loan is the amount of money you could potentially save over the life of the loan.
• As the example below shows, in the current rates environment you could save over $47,500 in interest just by going with a 15-year loan instead of a 30-year loan.
• Best case is to use the bank’s money for real estate and then your capital in stocks or other higher yielding investments.
• A 15-year mortgage is a loan for buying a home whereby the interest rate and monthly payment are fixed throughout the life of the loan, which is 15 years.

It is the path that generations of Americans have taken to first-time homeownership. While the 28 and 36% ratios are ideal, lenders understand that life can be complicated. Depending on your income or credit score, you might be able to borrow as much as 43% of your monthly income. The table below provides a quick summary of how the differences between these two loan terms will affect you as a borrower. A means that it’s the more expensive option of the two loans, and a means that it’s the less expensive option.

Weekly national mortgage interest rate trends

• Our own mortgage and refinance rates are calculated at the close of the business day, and include annual percentage rates and/or annual percentage yields.
• Great credit plus massive home equity gains provides a tremendous amount of cushion.
• You spend some time reviewing your financial situation and deciding whether a shorter term is the way to go.
• Whatever it is, there’s always a reason to spend that money somewhere else.
• A 15-year mortgage costs less in the long run since the total interest payments are less than a 30-year mortgage.
• Fundrise manages over $3 billion and has over 350,000 clients.
• When interest rates drop, astute borrowers will be quick to lock in the lowest fixed rate possible.
• A 30-year fixed-rate mortgage allows you to get a home with a lower monthly payment than a 15-year mortgage—but the interest makes it more expensive.
• The amount of debt you’re carrying can also affect the mortgage rate on your 15-year fixed mortgage loan.

In other words, among other things, take into consideration the future of the housing market when choosing the type of mortgage. A 15-year mortgage has a higher opportunity cost, especially when times are very good. For example, if the stock market ends up going up 20% a year for the next three years, you may have preferred to get a 30-year amortizing loan and invest the extra cash flow instead. For example, in 2003, I had a goal of paying off my 30-year fixed mortgage in 10 years. But I ended up refinancing the property after one year to a lower 30-year fixed mortgage. Then I wised up and refinanced the mortgage to an ARM several years later.

You will end up paying $1,773 a month for a total of $638,280 over the life of the loan (excluding taxes and fees)—meaning you will pay about $288,280 in interest. On the flip side, the smaller monthly payments of a 30-year mortgage will have you paying down the interest a lot slower. The only downside to a 15-year mortgage compared to a 30-year mortgage is that it comes with a higher monthly payment. With the higher monthly payment on a 15-year mortgage, more of your money goes toward paying off the principal amount of your loan—instead of getting thrown away on interest.

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(This is an option with most every lender, but contact yours to confirm.) You’ll pay less interest and shorten the pay off time while still keeping some wiggle room. Should a financial emergency arise, you can revert to your original, lower payment amount for that month, or as long as you need to, without incurring any penalties. Shopping around for quotes from multiple lenders is key for every mortgage applicant. When you shop, consider not just the interest rate you’re being quoted, but also all the other terms of the loan. Be sure to compare APRs, which include many additional costs of the mortgage not shown in the interest rate.

But over time, mortgage rates on adjustable rate mortgages increase and so do the monthly payments the homeowner has to make. With a 15-year fixed-rate mortgage the interest rate may start a bit higher than an ARM, but it will stay consistent for the entire term of the loan. A 15-year fixed-rate mortgage offers homeowners the opportunity to build equity faster and save on interest over the life of the loan. This mortgage type is ideal for those who can afford higher monthly payments and want to become debt-free sooner. Total Mortgage has years of expertise in helping homebuyers secure the best 15-year mortgage deals.

Get the right mortgage from a trusted lender.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. A higher cash reserve means less money going towards saving for retirement. A $240,000 a year household can afford to buy up to a $720,000 home. If the household wants to stretch the multiple from 3X to 5X given rates are so low, the household can afford to buy up to a $1,200,000 home.

• Checking mortgage rates daily or weekly is a great way to get a feel for the market and what interest rates you’re likely to see when you apply for a home loan.
• Other factors that have an impact on mortgage rates include the number of mortgage points you’re paying for and the amount of money you’re willing to put down.
• It’s also possible to refinance into a shorter-term mortgage once you’re in a better position financially, perhaps once you’re a bit older or close to retirement.
• However, in my experience, I’ve found we seldom stick to our mortgage payoff intentions.
• If you’re uncertain about how hefty a mortgage payment you can afford in the first place, try a home affordability calculator.

The higher the interest rate, the greater the gap between the two mortgages. When the interest rate is 4%, for example, the borrower actually pays almost 2.2 times more interest to borrow the same amount of principal over 30 years compared with a 15-year loan. If you’re uncertain about how hefty a mortgage payment you can afford in the first place, try a home affordability calculator. On Monday, January 06, 2025, the national average 15-year fixed refinance APR is 6.41%.

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Fixed rate mortgages for 15 years are less common in the UK than they are in some other countries, but they are available from some lenders—even though we found none with the major banks at this time. Generally, most lenders in the UK offer fixed rate mortgages for either two, three, five or ten-year terms. However, there are a few lenders that offer fixed rate mortgages for 15 years, so it is worth shopping around to find the best deal if you feel that a 15-year fixed-rate mortgage is what you need.

Paying off your mortgage by the time you retire is like a satisfying accomplishment and gift to yourself. In this scenario, getting a 15 year implies maxing out retirement accounts automatically. Would maxing out both you and your spouse’s 401k and Roth IRA and HSA (assuming your both healthy) be a better investment than saving many thousands of dollars in mortgage interest? This is actually a simple math problem and many financial advisors have come to a consensus. I’d only add that Dave Ramsey sees this as a behavior problem, and therefore he strongly prefers a 15 year mortgage.