15-Year Fixed Mortgage: Pros and Cons

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.

• To save $46,400 in interest expense with a 15-year mortgage that is 0.5% lower than an ARM, it would take nine years and three months with a $1 million loan.
• $60,000 conversion is $14,400 owed in tax based on 24% bracket.
• The rate averages tend to be volatile, and are intended to help consumers identify day-to-day movement.
• « Remember, you can always pay down extra on a 30-year mortgage if you choose. »
• A major benefit of 15-year mortgages, then, is that the amount of total interest you pay is often a fraction of what you’d pay with an equivalent 30-year loan.
• 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.
• Unfortunately, as of today, the 15-year fixed rate mortgage is now the same or higher than the average 5/1 ARM.

Is it harder to qualify for a 15-year fixed-rate mortgage?

15 Year Mortgage Rate is at 6.13%, compared to 6.00% last week and 5.93% last year. These loans meet the guidelines and rules set by the Federal National Mortgage Association (FNMA). You might know it better as Fannie Mae, one of the largest investors of conventional loans. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

The 15-year fixed mortgage

• Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.
• The Federal Housing Administration (FHA) charges lower mortgage insurance premiums to 15-year borrowers.
• For someone in the 24% tax bracket, the deduction might reduce the effective mortgage interest rate from, for example, 4% to 3%.
• If your budget has that flexibility and you’re set on shedding your mortgage five years sooner compared to sticking with the 30-year loan, refinancing could make sense for you.
• ” calculator in our Mortgage Center to help decide which loan term is best for you.
• The homebuyers who qualify for the lowest mortgage rates tend to have good credit scores.

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.

How much more a month is a 15-year mortgage?

One way to look at a 15 year fixed loan is « short term pain for long term gain ». Meaning, you face higher monthly mortgage payments than other longer-term options, but as a result, you will pay down your note much faster. With a fixed rate mortgage, your monthly mortgage payments remain the same throughout the term, which makes budgeting easier as you know exactly how much you will be paying each month. A 15-year mortgage fixed rate may be beneficial for many homeowners compared to other traditional loans, especially a conventional 30-year mortgage.

• Private mortgage insurance is required by lenders when you put a down payment that’s less than 20% of the value of the home.
• For example, on January 6, 2025, the average rate on a 15-year purchase mortgage was % (% APR) as opposed to that % (% APR) on a 15-year refinance.
• Additionally, you’ll typically build equity at a much faster pace with a 15-year mortgage than with a longer term loan.
• Below are the benefits of a 15-year mortgage versus a 30-year mortgage and an adjustable rate mortgage.
• For a added risk, I do agree with Sam’s approach of using an ARM if the rate spread between that and the 30 year mortgage is big enough.
• With a shorter loan period, buyers pay less in overall interest over the life of the loan compared to the 30-year fixed-rate option.
• Since monthly payments on a 15-year mortgage will be higher, you won’t have as much wiggle room and you might not be able to save as much.

They have lower interest rates than most mortgage loans.

Primary home – most people aren’t able to deduct the interest anymore with standard deduction. But it really just depends on the interest rate spread, risk tolerance on cash flow now and in the future, and how aggressive you want to lever up rental properties. My wife and I just paid off most of our debt and she just got a new job with a raise so we’ve been considering a 15 year. I went to check out Credible and they’re not yet available in NY.

Higher monthly payments

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 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.

The 15-Year Fixed Gets Paid Down a Lot Faster, But Costs a Lot More

I’d highly recommend any readers seize this opportunity now if they have the cash flow to cover the payment. The interest rate on a 15-year is so low it’s practically free, or potentially negative in inflation-adjusted terms. Rentals I think make more sense to stick with a 30 year because the interest expense is a good tax and you can improve your cash flow to buy more rentals and lower DTI calc as well.

• For instance, at one point in 2013, 15-year fixed rates were nearly 1% lower than 30-year rates.
• Suppose you want to buy a $400,000 house and have a healthy 20% down payment ($80,000).
• The main benefits of getting a 15-year mortgage are a lower interest rate, less interest paid overall, and building equity faster.
• For buyers looking to maximize their purchasing power, we often recommend the 30-year term.
• During this same time we are choosing to do ROTH conversions from pretax 457b accounts into ROTH 457b.
• Some people get a 30-year mortgage, thinking they’ll pay it off in 15 years.
• Starting around early 2019, the average 15-year mortgage rate average began to consistently fall below the average 5/1 ARM rate (green line lower than orange line).

Smart Savings

Homebuyers who aren’t interested in making mortgage payments for 30 years in a row can look into getting a 15-year fixed-rate mortgage. While these mortgage products aren’t as common as their 30-year counterparts are, they are a viable alternative that can offer homeowners several benefits. There are a few ways to pay down a 30-year mortgage in 15 years. First, you could consider refinancing your current mortgage into a 15-year fixed mortgage. Another way is to make extra payments towards the principal amount or make biweekly payments equal to one additional mortgage payment per year.

What were the lowest 15-year mortgage rates?

Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. Some products may not be available in all states and restrictions may apply.This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. The best way to determine whether a 15-year fixed-rate mortgage makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.

Forced Savings

A 15-year mortgage is a loan that helps you pay off your home in half the time as a traditional 30-year mortgage. You’re getting a lower interest rate, with a larger chunk of your money going toward the principal. So, you’re building equity faster and spending less on overall interest.

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At some point, you may have so much money that the debt becomes an annoyance and trying to always maximize returns is no longer necessary. Maybe that net worth level is $3 million for some or $20 million for others. Let’s say you bought your second primary residence, a forever home, at age 32.

What factors are considered in 15-year mortgage rates?

The lower monthly payment of a 30-year loan, on the other hand, may allow you to buy more house or free up funds for other financial goals. When deciding between a 30-year and a interest rate for 15 year mortgage, consider your circumstances. Do you need the flexibility of smaller payments, such as what you’d get with a 30-year loan? Or are you focused on the bottom line, and the interest savings you could get with a 15-year loan? Can you afford to make bigger monthly payments, or do you need room in your budget for other goals?

The loans are settled faster, and the overall interest expense to you is lower. A 30-year mortgage with a 4.5% interest rate would yield a monthly payment of around $2,000. That might be a good deal for first-time buyers who previously spent about the same amount on rent. A 15-year fixed-rate mortgage will accrue less interest than a 30-year fixed-rate loan simply because it has less time to accumulate. For example, let’s say you have a $350,000, 30-year fixed-rate mortgage at 4.5% interest.

There’s a Reason the 30-Year Mortgage Exists

As we make the mortgage payment and stash cash, we will pay the mortgage off once the two hit the inflection point. We are socking away 7500 monthly tax deferred and 5000 cash, plus ROTH conversions at 60,000 to 80,000 yearly. The whole point of real estate is leverage and if you lock up more capital in real estate than needed you really end up crippling your investment returns. Best case is to use the bank’s money for real estate and then your capital in stocks or other higher yielding investments.

This link takes you to an external website or app, which may have different privacy and security policies than U.S. We don’t own or control the products, services or content found there. The main advantages of a 15-year fixed mortgage are outlined below. At Bankrate we strive to help you make smarter financial decisions.

• If you’re in your 40s or 50s and buying a home, things get trickier.
• In a bull market, you want to buy the most home you can afford.
• Also, the higher monthly payment means a borrower may forgo the opportunity to build up savings or save for goals such as college tuition for a child or retirement.
• I’m a big fan of Sam, but this is one area where he and I definitely disagree.
• While these mortgage products aren’t as common as their 30-year counterparts are, they are a viable alternative that can offer homeowners several benefits.
• The main drawback of a 15-year mortgage is that you’ll have higher monthly payments, and you’re locked into them.
• Locking in the shorter duration of a 15-year mortgage now, especially if you’re in your 40s or 50s, potentially allows you to pay it off by the time you plan to stop working.
• Deciding between a 15- or 30-year-mortgage may not seem like something you want to use a lot of mental energy on when everything else is so overwhelming.

Long-term plans

It also requires the discipline to systematically invest the equivalent of those monthly differentials and the time to focus on the investments, which, he adds, most people lack. When mortgage rates are low, a savvy and disciplined investor could opt for the 30-year loan and place the difference between the 15-year and 30-year payments in higher-yielding securities. A shorter-term loan means a higher monthly payment, which makes the 15-year mortgage seem less affordable. But the shorter term makes the loan cheaper on several fronts. In fact, over the full life of a loan, a 30-year mortgage will end up costing more than double the 15-year option. The 15 Year Mortgage Rate is the fixed interest rate that US home-buyers would pay if they were to take out a loan lasting 15 years.

It is not the most optimal time to build due to the expense of materials and labor but we will be able to do some of the work ourselves to save on the costs. So the biggest decision will be to decide how much of the proceeds from the sale of our current home we will put towards the new mortgage and the loan term we will take out. I have changed my tune on a paid off mortgage with interest rates so low.

On paper, it’s no harder to qualify for a 15-year mortgage loan than a 30-year one. Guidelines vary by loan type (conventional, FHA, or VA), but within each program, requirements for a 15- and 30-year loan are generally the same. Better yet, the total amount of interest you pay will be much, much lower because you’re borrowing the same sum for half the period. A loanDepot loan consultant can advise you on whether this kind of refinance can make financial sense.

Below are the benefits of a 15-year mortgage versus a 30-year mortgage and an adjustable rate mortgage. Check back weekly or favourite this page to keep an eye on the ever-changing rates. The table below is updated as of November 12, 2024 and rates are subject to change.

The mortgage payment on the 15-year fixed from our example above is around $600 higher, even when factoring in a lower mortgage rate. I’ve already written at length about the pros and cons of a 15-year fixed mortgage, but some financial experts claim you shouldn’t even buy a home if you can’t afford this shorter-term mortgage option. When shopping for a new home, it’s wise to invest as much time in exploring mortgage options as you do in finding the right property.

From a different perspective, you’d pay over $300,000 in interest with a traditional 30-year mortgage. Instead, a 15-year loan means paying a little more than $100,000 in interest. That’s a notable difference for anyone, regardless of financial situation or goals. But what if you’re more established in your career, have minimal debt balances, and feel confident with your cash reserves? As long as you plan on being in your home for a while, a 15-year mortgage could be more beneficial. Borrowers should also know that a 15-year mortgage typically has a lower interest rate than a 30-year mortgage.

There are many different kinds of mortgages that homeowners can decide on which will have varying interest rates and monthly payments. A 15-year fixed-rate mortgage is a home loan paid in equal installments over 15 years. That 15-year period is known as the “loan term,” and a 15-year term usually comes with a higher monthly payment — but lower overall costs — than a 30-year fixed-rate mortgage. Rates on 15-year mortgages are usually lower than 30-year mortgage rates, which means you can save a lot by simply choosing a 15-year loan term. Lenders consider a shorter loan term less risky, which is why they’re willing to offer lower mortgage rates.

Since crossing above the 6.4 percent mark in April this year, 15-year mortgage rates have trended downward. While it remains to be seen whether they’ll continue falling into 2025, the consensus for now is that rates appear to be stable, even with Federal Reserve rate cuts. This table does not include all companies or all available products. After selecting your top options, connect with lenders online or on the phone.

Whether you’re buying or refinancing, Bankrate often has offers well below the national average to help you finance your home for less. Compare rates here, then click « Next » to get started in finding your personalized quotes. On Monday, January 06, 2025, the national average 15-year fixed mortgage APR is 6.38%.

In the long term, 15-year loans can lower your total interest costs and get you out of debt faster. In the short term, however, you’ll face higher monthly payments and less flexibility. One way young homebuyers can break this cycle is by choosing a 15-year mortgage over a 30-year term.