15-Year Fixed Mortgage: 1/2 The Time, But Higher Payments

15-Year Fixed Mortgage: 1/2 The Time, But Higher Payments

Although the 30-year fixed mortgage has traditionally been the darling of home buyers, today many buyers are opting for shorter terms so they can pay their homes off in less time and shed the burden of a monthly mortgage payment more quickly. The leader of the pack in shorter-term fixed-rate mortgages is the 15-year fixed rate loan. Just like its 30-year counterpart, the 15-year fixed rate mortgage offers borrowers a set term – in this case, 15 years – and a fixed interest rate that’s set on the date the loan is approved (or applied for, if you’re able to “lock in” your rate) and which remains in effect for the entire life of the loan.

The 15-year mortgage is especially popular among buyers who have considerable down payments, such as those who sell one home and use those proceeds to fund the down payment on their next home. Although 15-year loans don’t necessarily require a larger down payment than 30-year loans, having a smaller principle makes the monthly payments easier to handle.

In addition to having your home paid off in less time than a traditional 30-year mortgage, a 15-year fixed mortgage offers other advantages to borrowers:

  • More equity in less time: Because you’re paying a larger portion of the principle each month, a 15-year loan builds equity faster than a 30-year loan.
  • It’s budget-friendly: Like any fixed-rate product, a 15-year fixed mortgage requires the same payment every month, which makes it easier to plan for.
  • You’ll pay far less total interest over the life of a 15-year fixed-rate loan compared to a 30-year mortgage: usually tens of thousands of dollars, and often more.
  • Finally, interest rates for 15-year loans are often lower than rates associated with 30-year mortgages.

No mortgage is perfect, and like other loan products, a 15-year fixed rate mortgages isn’t without its disadvantages:

  • Because the rate is fixed, if you want to capture a lower rate, you’ll need to refinance the loan.
  • And, because the life of the loan is shorter, your monthly payments will be considerably higher than those you’d have with a 30-year fixed loan.

If a fixed-rate loan sounds good to you, the 15-year term is a great choice if you can afford the bigger monthly payments. Although paying your loan down faster sounds attractive, take the time to carefully review your finances to be sure that bigger monthly payment won’t get you in over your head.