What are the pros and cons of getting a 15 year fixed rate loan?
The 15-year mortgage has some advantages when compared to the 30-year, such as less overall interest paid, a lower interest rate, lower fees, and forced savings. There are, however, some disadvantages as well, such as higher monthly payments, less affordability, and less money going toward savings.
Pros of a 15-year mortgage include paying less in interest over the life of the loan as a result of a lower rate and shorter term, and paying off your mortgage sooner. On the downside, the monthly payments on a 15-year mortgage will be higher due to the shorter repayment schedule.
Cons of 15-year Mortgages
The higher monthly payment may be too much for many people's budget. For example, not including taxes and insurance, in January of 2020, you would pay approximately $1,411 per month for a 15-year, $200,000 loan. A 30-year, $200,000 loan (without insurance and taxes), would be $898 per month.
With a 30-year mortgage, you make 360 monthly payments. Because you're paying a smaller portion of the amount you borrowed (or principal) each month, your monthly payments are lower than with a 15-year loan. However, since you pay interest for twice as long, the total paid will be much higher than with a 15-year loan.
| Fixed-rate mortgage pros | Fixed-rate mortgage cons |
|---|---|
| Easy to budget for (monthly payments are always the same) | Higher monthly payments |
| No prepayment penalties | May be harder to qualify for |
| Good for long-term homeowners | May not be as good for short-term homeowners |
Dave believes the shortest path to wealth is to avoid debt. And he says the best way to do that is to either buy a house with cash or go with a 15-year mortgage, which has the overall lowest total cost—and keeps borrowers on track to pay off their house fast.
A 15-year mortgage can be a good option if you can afford the higher monthly payments and want to keep your interest costs as low as possible. It can also be an optimal choice if you're looking to pay off your home in a shorter period of time.
The 15-year mortgage has some advantages when compared to the 30-year, such as less overall interest paid, a lower interest rate, lower fees, and forced savings. There are, however, some disadvantages as well, such as higher monthly payments, less affordability, and less money going toward savings.
Reason #1: Your Retirement Plan Supports It
If choosing a 15 year mortgage would jeopardize your retirement goal, then you shouldn't go with the 15 year mortgage. Period! However, if your plan works regardless of the mortgage length, then it's perfectly acceptable to go with the 15 year option.
To qualify for a 15-year fixed-rate mortgage, you'll need great credit and a low debt-to-income ratio. In addition, because you'll pay the loan off much faster, you need a better credit score and DTI than you would for a 30-year loan because the risk of default is much higher.
What is the trade off if you get a 15-year mortgage rather than a 30-year mortgage?
People with a 15-year term pay more per month than those with a 30-year term. In exchange, they are given a lower interest rate. This means that borrowers with a 15-year term pay their debt in half the time and possibly save thousands of dollars over the life of their mortgage.
If you originally got a 15-year mortgage but find the payments challenging, refinancing to a 30-year loan can lower your payments by as much as several hundred dollars each month.
If your aim is to pay off the mortgage sooner and you can afford higher monthly payments, a 15-year loan might be a better choice. 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.
The part of your fixed-rate mortgage payment that changes annually is your escrow. Each year, the financial institution that holds your mortgage estimates how much you'll pay in property taxes and home insurance. If your home value has risen since the prior year, the cost of your taxes and insurance will also increase.
Be advised as well: Refinancing or breaking a fixed-rate mortgage to switch to a new loan product also comes with additional costs attached, just as when applying for a first mortgage. Doing so means having to go through a background and credit check and having to pay appraisal, inspection and title fees again.
Although, most long term fixed mortgages are sold to a securitizer, who will package a group of like mortgages into a security which will be sold. The lead institution will make their money on fees, and end up with no risk and a significant profit. In some cases the may just to put the asset on their books.
The Fed raised the rate 11 times between March 2022 and July 2023 to combat ongoing inflation. After its December 2023 meeting, the Federal Open Market Committee (FOMC) predicted making three quarter-point cuts by the end of 2024 to lower the federal funds rate to 4.6%.
If the interest rate in both mortgages is the same, then yes, you will end up paying the same amount in interest if both are paid off in 15 years. However, in practice, almost always a 15-year mortgage will have a much lower interest rate that a 30-year mortgage.
Answer and Explanation: The interest rate on a loan directly affects the duration of a loan. Note: The interest rate is calculated using the hit and trial method. Therefore, it takes 30 years to complete the loan of $150,000 with $1,000 per monthly installment at a 0.585% monthly interest rate.
Ramsey elaborated on the conditions under which a homeowner might consider refinancing to a 30-year mortgage, such as avoiding foreclosure or bankruptcy. However, he said, “It doesn't make it better than a 15-year mortgage. You'll never hear me recommend a 30-year mortgage.”
What is the interest rate on a 15 year mortgage right now?
| Product | Interest rate | APR |
|---|---|---|
| 15-year fixed-rate | 6.259% | 6.385% |
| 10-year fixed-rate | 6.188% | 6.387% |
| 7-year ARM | 6.836% | 7.665% |
| 5-year ARM | 6.811% | 7.814% |
| Product | Interest Rate | APR |
|---|---|---|
| 30-Year Fixed Rate | 7.19% | 7.24% |
| 20-Year Fixed Rate | 7.04% | 7.09% |
| 15-Year Fixed Rate | 6.66% | 6.74% |
| 10-Year Fixed Rate | 6.55% | 6.62% |
Can a 70-year-old choose between a 15- and a 30-year mortgage? Absolutely. The Equal Credit Opportunity Act's protections extend to your mortgage term.
The upshot is that if you're over the age of 62, you're almost 30% more likely to get rejected for a standard mortgage.
It will cost about 10–20% more to pay off a 30 year mortgage in 15 years than to take a 15 year mortgage and pay it off in that time. Generally, that's how much higher mortgage interest rates are on 30-year versus 15-year mortgages, about 10–20% higher.
