15 Year Mortgage Pros and Cons

BY The Lenders Network

3 minute read

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 the 15 year fixed rate mortgage.

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Why a 15 year mortgage is your best option

If you’re considering a 15 year 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 mortgage will save approximately $80,000 in interest over the life of the loan. The savings is substantial.

The average interest rate on a 15 year mortgage is 3/4 of a percent lower than 30 year mortgages. 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.

15 Year Mortgage Pros

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

Reasons why you shouldn’t get a 15 year mortgage

The main reason home buyers choose not to get a 15 year mortgage is because it comes with a higher mortgage payment. With a 15 year rate your mortgage payment will be a couple hundreds 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 with 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. In the event anything changes and money becomes tight you have the comfort of a more affordable mortgage payment.

15 Year Mortgage Cons

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

Paying off Your 30 Year Mortgage in 15 Years Chart

pay off 30 year mortgage in 15 years chart

Chart from Bankrate.com

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 lot’s 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, 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 rates.

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 type of mortgage 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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