A 15-year mortgage is a home loan with a fixed interest rate and a monthly payment for the duration of the loan. Some borrowers choose the 15-year mortgage over the more traditional 30-year mortgage, since it can reduce the amount of interest paid over the life of the loan.
In the market today, there are a variety of mortgage options to choose from. When compared to a 30-year mortgage, the 15-year mortgage has some benefits and drawbacks. Both products, however, have some similarities, such as the fact that the interest rate is influenced by the borrower’s credit history and credit score.
A credit score is a numerical measure of a borrower’s likelihood of repaying debts. Payment history, credit history duration, and the number of open credit accounts are all elements that affect a credit score. Naturally, both a 15-year and 30-year loan require sufficient monthly income to cover the possible mortgage payment as well as other debts.
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Like with any mortgage, the rates on a 15-Year mortgage change daily. However, the rate on a 15-Year mortgage is lower than a 30 Year mortgage. The lower rate provides another incentive for people to choose a shorter term.
With a 15-year mortgage, you will save money and create equity faster than with a 30-year mortgage. However, because there is less time to pay off the loan, the monthly mortgage payment on a 15-year mortgage will be significantly higher that longer term loans. It’s essential when comparing 15-year mortgage rates to see if you will be able to make the monthly payments while still having money left over for other things like retirement savings. Obtaining a lower interest rate will save you hundreds of dollars over the course of a year’s mortgage payments and thousands of dollars over the course of the loan’s life.
If you are considering refinancing to a 15-Year mortgage, make sure you evaluate the Loan Estimates from various lenders to find the best rate and fee combination.
The following are the main differences between 15-year and 30-year fixed mortgages:
● Interest rate
● Length of mortgage
● Interest paid
When looking for the best mortgage rate on a 15-Year mortgage, keep in mind that the whole cost of the loan, not just the interest rate, is important to consider. Closing costs for a mortgage can range from 3% to 5% of the loan amount, and the fees you pay vary by lender. If the lender with the lowest rate also charges higher origination fees or adds discount points, the lender with the lowest rate may end up being more expensive overall. This is why, rather than comparing interest rates alone, you should evaluate annual percentage rates (APR), which include certain costs in addition to the interest rate.
The Loan Estimate, which the lender must offer within three business days after you file a mortgage application, can be used to compare interest rates and fees. It’s simple to compare different offers because all lenders must use the same Loan Estimate Form. On 15-year fixed-rate mortgages, the interest rate and total amount of interest paid are lower, but the monthly payments are higher because the mortgage is paid off in less time. A 30-year mortgage may make it simpler to qualify for a larger loan, depending on your financial condition.
A 15-year mortgage calculator is an excellent tool for estimating a monthly payment. When utilizing a mortgage calculator, keep in mind that in addition to the Principal and Interest payment, taxes, insurance, and maybe Private Mortgage Insurance, should also be included. The amount of Private Mortgage Insurance is decided by the loan program, credit score, down payment amount, and a number of other criteria. If the Mortgage Calculator does not allow you to include taxes, insurance, or Private Mortgage Insurance, speak with a Loan Officer to acquire an estimate. Keep in mind that the Mortgage Calculator is only as good as the data you enter.
The 15-year mortgage rate is the fixed interest rate that homebuyers in the United States would pay if they took out a 15-year loan. For the current 15-year mortgage rates, check out our rate chart on the front page.
There are several distinct types of mortgages available to homeowners, each with its own set of interest rates and monthly payments. The 15-year mortgage rate peaked at 8.89% in 1994 and has since dropped to historic lows in 2021. The recent rate on a 15-year mortgage is 2.23%, down from 2.28% last week and 2.36% last year. This is lower than the 5.23% long-term average. Changing a mortgage’s repayment duration has a major impact on your monthly mortgage payment. Short-term loans, such as a 15-year loan, have a larger monthly mortgage payment, which can be 40% to 50% higher than a 30-year loan. However, you will be able to repay the debt considerably sooner.
Experts in the field of housing and economists, disagree on how high mortgage rates will rise before the end of the year. Through the end of 2021, Fannie Mae expects average 30-year rates to be as low as 2.90 percent, while Freddie Mac expects rates to rise to 3.40 percent. The average 30-year mortgage rate forecast by agencies is 3.14 %.
Keep in mind, the Fed Funds rate, which is set by the Federal Reserve and is used by banks to lend to one another. The Fed Funds rate has no direct bearing on fixed mortgage rates, but it can have an impact. This is because this index sets the tone for the whole interest rate market in the United States. The current federal funds rate ranges from 0% to 0.25 percent. The Fed also has no plans to raise those rates until 2022 at the earliest.
Over the next 90 days, mortgage rates appear to be on the rise. The Federal Reserve is expected to begin reducing its economic stimulus before the end of the year, which might lead to an increase in mortgage rates in November or December. By the end of the year, major housing organizations forecast that 30-year mortgage rates will have risen to 3.14% on average. Interest rates haven’t been this high since April 2021, when they hit 3.18%.
We’ll look at the benefits and drawbacks of a 15-year mortgage so you can determine how it fits into your overall financial plan.
● 15-year mortgage interest rates have historically been lower than other mortgage options, providing a welcome boost to your bottom line. A quick look at the current mortgage rate table will show you how much money you can save if you get a 15-year loan instead of a 30-year loan.
● You’ll make 180 payments instead of the 360 you would make on a traditional 30-year mortgage. When you make fewer payments, you pay less interest overall. Even if you have the same interest rate on a 15-year fixed-rate mortgage as you would on a 30-year fixed-rate mortgage, you’d pay less in interest because your payments would be completed 15 years sooner.
● Becoming debt free should be everyone’s goal and a 15-Year mortgage will help accomplish this goal quicker.
● You accelerate the equity-building process by paying down your principal in half the time it would take on a 30-year mortgage. The term “equity” refers to how much of your home you possess. For example, if you owe $150,000 on a $300,000 home and it is now worth $360,000, you have $210,000 in equity in that home – the lender owns the rest.
● The higher monthly payment is the biggest drawback of 15-year mortgages for many consumers. When compared to a 30-year loan, you repay a bigger part of the principle each month. This means you’ll have less money available in your budget each month for other costs and investments, perhaps putting you in a difficult financial situation.
● Lenders want to make sure you can afford to pay them back, so if the monthly payments on a 15-year mortgage exceed your monthly budget, they’re unlikely to grant you as much money as they would with a longer-term loan.
● Don’t be so anxious to pay off your mortgage that you forget about saving for retirement. Because the stock market has outperformed home values over time, it may make sense to spend the extra cash saved by taking out a 30-year loan, and investing the difference in your retirement account.
The economy, your financial situation, and the lender all have an impact on the mortgage rate you’re offered. Comparing multiple lenders is the best approach to see if you’re getting a good 15-year mortgage rate. When you make lenders compete, you may compare loan offers and see which one gives the best rate and charge combination.
When evaluating lenders and prices, as with any financial product, you should take your time. Current 15-year mortgage rates may appear attractive, but keep in mind, the payment is significantly higher than a longer-term mortgage. It’s always best to look at it in context, so you can make an informed decision about which loan is best for you. The main difference between a 15-year and a 30-year mortgage is that a 15-year mortgage requires your lender to verify that you can afford higher monthly payments, which often requires a greater income and a lower debt-to-income (DTI) ratio.
You can attempt to raise your income or pay down your debt if your DTI ratio is too high. You can pay off debt in a variety of methods, such as:
In regards to amount of time it takes to pay off the mortgage, yes, they are the same. However, the 30-year mortgage will have the higher rate so more interest will be paid on the 30-year mortgage even if it is paid off in 15 years. But, the 30-year mortgage will allow you to fall back to the 30-year payment if your budget doesn’t allow the larger payment for that month. So, if you believe there is a chance paying the 15 year payment won’t be possible, it is better to get a 30-year mortgage. This give more flexibility when times may be tight financially.
Yes, a 15-year mortgage always has a lower interest rate than a 20-year mortgage or a 30-year mortgage. Because the term is half as long, you’ll also pay a lot less interest during the loan’s life. Of course, this means your monthly payment will be more than on a 30-year loan. In addition to a better rate, 15-year fixed-rate loans have less interest over the life of the loan and allow you to be debt free sooner.
It is slightly more difficult since the payment is higher, which causes your debt to income increase. So, as long as your income allows you to qualify, there is no difference with the qualification process. The lower rate will help marginally but the payment will still be significantly higher than a longer-term mortgage. A 15-year mortgage is appropriate for consumers who can afford a higher monthly loan payment and have lower amounts of other types of monthly payments. A 15-year loan is also an excellent option for people who anticipate an increase in income or a decrease in debt. Those who intend to retire in the next 30 years are also suitable candidates, because it isn’t ideal to carry a mortgage into retirement.
Yes, the credit score does directly affect the mortgage interest rate you will be offered from lenders. Credit score is always a large determining factor for all loans and the rates offered. So, a consistent strategy to maintaining a high score is a great idea so that a lower amount of interest is paid on all loans. If your credit score is not where you would like, always ask your Loan Officer if there are simple steps that can be taken to improve the score, resulting in a lower interest rate. There are often two or three steps that can be taken which will improve your score in a short period of time.
As long as the score is sufficient and the debt to income is within the guidelines, a 15-year mortgage is very obtainable. A shorter termed mortgage is always a great idea when the income is sufficient and the quality of life isn’t compromised. The interest savings over the life of a loan are significant. So, ask your Loan Officer if a 15-year mortgage is right for you.
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