15 Year Mortgage Pros and Cons


A 15-year mortgage will have a lower interest rate, and you’ll pay off your home much faster.

However, there are drawbacks to consider.

In this article, we will go over the pros and cons of 15-year fixed-rate mortgages.

Why a 15-year mortgage is your best option

A 15-year fixed-rate mortgage will save you tens of thousands in interest charges.

If you’re considering a 15-year fixed-rate mortgage, you probably already know that you will save tens of thousands of dollars in interest. On a $200,000 home loan, a 15-year loan term will save approximately $80,000 in interest over the life of the loan. The savings are substantial.

The interest rate on a 15-year loan can be as low as a full percentage point lower than a 30-year mortgage. Another obvious benefit of 15-year mortgage loans is that you will build equity faster. Because your monthly mortgage payment will be higher, and you are paying less interest, equity will build quicker.

A 15-year loan term is a great way to force yourself to save. Since a home is an investment, paying more each month will force you to spend less and invest more. However, you will be locked into the higher payment. If anything changes in your financial life, you could be forced to refinance or miss payments.

Advantages of a 15-Year Mortgage

  • Pay mortgage off sooner
  • Lower interest rate
  • Substantial savings over the life of the loan
  • Lower closing costs in some cases

 

Reasons why you shouldn’t get a 15-year mortgage

Homebuyers choose not to get a 15-year mortgage because it comes with a higher mortgage payment. With a 15 year rate, your mortgage payment will be a couple of hundred dollars more per month. Because the monthly payment on a 15-year loan is higher, it affects your DTI ratio. With a 15 year term, the maximum loan amount you qualify for will be less than a 30-year term.

If you want to pay off your mortgage faster than in 30 years, you still can. Just because you have a 30-year rate doesn’t mean you can’t pay it off early. Just add, however, much towards the principal balance each month. You can pay off your mortgage faster and save thousands in interest. And with the 30-year term, you are not locked into the higher payment with a 15-year term. If anything changes and money becomes tight, you have the comfort of a more affordable mortgage payment.

Disadvantages of a 15-Year Mortgage

  • Higher monthly payment
  • More cash reserves required
  • Lower maximum loan amount
  • Less money for savings

 

Refinancing into a 15-year mortgage

If you currently have a 30-year mortgage, you may be considering refinancing into a 15-year mortgage. You may be able to get a substantially lower interest rate than you currently have. There’s no doubt a 15 year refinance mortgage will save you lots of cash in interest. However, they do come with higher monthly payments.

You should always be sure you can afford the higher monthly mortgage payment before refinancing into a 15-year rate. If any additional expenses come up, the money will become even tighter. If you want to pay off your mortgage faster, you can always add additional principal in your payment to pay your mortgage off quicker. (see chart above)

FHA Streamline Refinance

An FHA streamline refinance is just like a traditional refinance; only it requires less paperwork. i.e., the process is streamlined so you can refinance your mortgage quicker and easier. The great thing about FHA and VA streamline refinances is that they do not require a credit check or income verification. Streamline refinances are available in a 15-year, 30-year, and 5-1 adjustable rate.

The Bottom Line

You will save tens of thousands of dollars with a 15-year mortgage term. However, you will be paying a higher monthly payment. Because of the higher payment, you will qualify for a lower loan amount. 15-year mortgages have their advantages and drawbacks. You should consult a qualified loan officer to go over your options and find the best mortgage type for you.

(More on choosing the right mortgage loan for you, see How Much House Can You Afford?  30-Year Vs. 15-Year Mortgages 5/1 Arm vs. 15 year fixed rate loans

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