Is a 15-Year Mortgage Right for Me?
A 15-year mortgage isn't right for everybody, but it may be perfect for you. Let's talk about what the 15-year mortgage is, then we'll get into the gritty details to help you figure out if this product would work well in your situation.
Definition of the 15-Year Mortgage
15-year mortgages offer the solidity of a fixed rate, paid off in half the time of the standard 30-year fixed rate mortgage (FRM). In addition, 15-year FRMs have much lower interest rates than their larger counterpart, making them the more cost effective choice. In combination with the shorter pay-off time, borrowers save a ton of money by not having to pay higher interest on a longer loan term. Lower interest means building home equity much faster as well.
What's the Catch with the 15-Year Home Loan?
The drawback is that monthly payments are higher with the 15-year mortgage than with the 30-year. So while you are saving money on interest, your monthly budget still takes a hit. In some cases, the monthly payment can be large enough to prevent borrowers from comfortably taking on a larger loan amount, meaning possibly missing out on that dream home.
Some borrowers actually choose to take on the more costly interest of a 30 year mortgage since they always have the option to make higher payments on occasion if they want to pay it off faster. Another thing to note is that while you are building equity in your home faster with a 15-year mortgage, that equity can be difficult to access if you need fast cash in case of an emergency.
Downpayment for a 15-Year Mortgage
Typically, lenders require borrowers to make a down payment as low as 3% to qualify for a 15-year home loan (although private mortgage insurance will almost definitely be required for any down payment less than 20%, which can hike up the amount you're paying each month). Generally, it's smart to have as big a down payment as possible -- regardless of the specific loan you opt for.
All in all, 15-year mortgages are a solid choice for many reasons. Low, dependable, fixed interest rates are the major selling point. The ability to pay off the loan in half the time of the popular 30-year is a close second. This makes the 15-year fixed rate home loan a perfect fit for both first time home buyers as well as homeowners looking to refinance from an unpredictable adjustable rate to a solid, fixed rate structure without the 30 year commitment.
Have additional questions? The home.loan team is here to help. Message us with your questions using the consultation button at the bottom of the page.