Would you give a stranger you’ve never met $105,000… or $233,000?
If you chose the first option, you’re a 15-year mortgage type of guy/gal. If you chose the latter option, let’s just say you love paying more in interest.
With lower rates and faster ways to pay off the biggest debt in your life, a 15-year home loan could be the smarter move.
Let’s take a look at how 15-year fixed mortgages work as well as some of the pros and cons so you can see if it makes sense for you.
How Do 15-Year Fixed Loans Work?
A 15-year fixed-rate mortgage is exactly that – a mortgage loan with fixed monthly payments for 15 years.
Most folks that choose this type of loan have a goal of paying off their mortgage as soon as possible so they can focus on continuing to build their wealth or preparing for a stress-free retirement.
Types Of 15-Year Mortgages
You have a few options when it comes to loan types if you’re considering a 15-year mortgage.
These are some common types of mortgages that offer terms of 15 years.
Conventional
Conventional loans will usually need a credit score over 640. As far as down payment, you may be able to find options with as low as 3%.
FHA Loans
FHA loans are much easier on the credit requirement, going all the way down to 500 with some lenders, but usually it’s 580. You’ll need a down-payment of 3.5% for this type of loan.
VA Loans
VA loans don’t necessarily have a credit score requirement, but most lender want to see at least a 600. There is no down payment because VA loans are 100% financing.
Keep in mind that these loans are only for active duty members of the US military, eligible spouses, and veterans.
USDA Loans
USDA loans are another 100% financing option that looks different than other loans.
These are mostly for rural and suburban areas and have income limits in order to qualify.
USDA loan credit requirements start at 620.
Jumbo Loans
The credit score requirements for jumbo loans start at 640. The down-payments for jumbo loans can be as low as 5%, but usually 10% is the standard.
The Pros Of A 15-Year Mortgage
Lower interest rate
15 year fixed rate mortgages generally have lower interest rates than 30 year mortgages. This means that borrowers will pay less in total interest over the life of the loan.
Faster pay off
With a 15 year mortgage, borrowers will pay off their loan in half the time of a 30 year mortgage. This can help borrowers become debt-free faster and potentially save tens of thousands of dollars in interest payments.
Build home equity faster
As borrowers make payments on their mortgage, they build equity in their home. With a 15 year mortgage, borrowers will build equity at a faster rate than with a 30 year mortgage.
Potentially lower monthly payments
While the monthly payments on a 15 year mortgage may be higher than on a 30 year mortgage, they may still be lower due to the lower interest rate.
Cons Of A 15-Year Mortgage
Higher monthly payments
When opting for a 15 year mortgage, be mindful that the shorter term results in monthly payments that are typically higher than those associated with 30 year mortgages.
Make sure you’re financially able to take on the increased payments before making any commitments. While it’s nice to have a great rate, the rate does nothing if you can’t afford it.
If you have other things that are up on the totem pole such as paying off high-interest credit card debt, it may be best to focus on paying this off before increasing your mortgage payments.
On the other hand, if you have other savings goals, such as retirement or a child’s education, raising your mortgage payments could hinder your ability to reach these targets.
Limited flexibility
With a 15 year mortgage, if you lose your job or have other sort of income fluctuation, you may not be able to make your monthly payments. This will cause you to default on the loan and potentially hurt your credit.
Depending on who the lender is, you may be able to work out payment arrangements, but that’s not something you should bank on.
Defaulting on a loan is very serious and can have a lasting impact on your credit.
15-Year Fixed Rate Mortgage FAQs
What are the 15-year mortgage rates right now?
Rates fluctuate multiple times a day depending on market factors.
To get a fresh up-to-date rate quote, take the 30-Second Quiz on our site!
Are mortgage rates lower for 15-year fixed?
Usually yes. The reason for this is that they are lower risk since the intention is to pay back to loan early and you are committing to higher payments every month.
How do I know if a 15-year fixed mortgage is right for me?
The best way to determine if a 15-year fixed mortgage is right for you is to consider your individual financial situation.
Ask yourself questions such as:
- Can I afford the monthly payments of a 15-year loan?
- What are my long term goals and how does this fit into them?
Once you’ve answered these questions, give us a call and we can help guide you in the right direction.
Wrapping It Up: Should You Go with a 15-Year Mortgage?
If paying off your mortgage faster is important to you, a 15-year fixed-rate mortgage could be a great solution.
You’ll benefit from lower rates and be able to build equity faster.
If you prefer to have lower monthly payment with the option to add an extra payment here or there, a 30-year fixed-rate mortgage may be a better option.
