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Home buyers who want predictable mortgage payments and are eager to pay off their homes quickly may be interested in a 15-year fixed-rate mortgage. As the name suggests, this is a mortgage designed to be repaid over just 15 years, or 180 monthly payments.
Fifteen-year mortgage loans tend to offer low interest rates, because such a short loan term means lenders take on less risk. Here are the current 15-year mortgage rates.
A 15-year mortgage is a fixed-rate loan amortized over 15 years. While your monthly payment never changes, the amount that goes toward your principal (the amount you actually borrowed) increases over time. At the same time, the amount that goes toward interest decreases.
Fifteen-year mortgage terms are an alternative to the more popular 30-year mortgage. Loans amortized over 15 years come with much lower total interest costs, because you pay interest for half the time. Another contributing factor: the annual percentage rate (APR) for a shorter loan term is usually lower. But because you pay off your loan in half the time, monthly payments are much higher.
The good news is that your interest rate and payment will never change during the life of your loan -- 15-year mortgage rates are fixed-rate loans. You know up front when you borrow exactly when you'll become debt free, and what your total costs will be.
Fifteen-year mortgages are offered by banks, online lenders, and credit unions. Mortgage brokers (who gather your financial documents and match you with lenders) can also help you apply for one. Rates and lender requirements vary. Borrowers should get quotes from multiple mortgage lenders. As you look, keep an eye out for lenders that offer prequalifying. This gives you a quote without a hard inquiry (which slightly lowers your credit score).
Make sure you compare mortgage rates and terms only to other 15-year mortgages. It's important to look at the interest rate, points (prepaid interest), loan origination fees and costs, and qualifying requirements when comparing 15-year mortgage loan rates. Also pay attention to the annual percentage rate (APR) of each loan. This number give you the total annual loan costs factoring in fees and interest. It can help you see the big picture as you compare one loan to another.
All mortgage rates are fluid, so they can change at any moment until you lock in your rate. There is no limit to how often lenders can change mortgage rates. Most lenders update their rates once a day Monday through Friday, except on bank holidays.
Once you have a rate locked in, the lender is supposed to honor that rate unless something changes in your application that affects your eligibility. Now and then a lender fails to honor a rate lock or simply lets it expire. This is not typical, but it can happen.
Mortgage rates are partly determined by market factors. Two big factors are the ability to sell the mortgage later, and the interest rate banks charge each other.
Personal factors also affect your mortgage rate. Your credit score, the amount you have for a down payment, the amount of your other debts, how much cash you have, and the type of loan you want can all affect your rate.
A 15-year mortgage is a good choice for borrowers who want to become debt free as soon as possible, but can't qualify for a 10-year mortgage or want to keep their payments slightly lower. Home buyers concerned with keeping total interest costs down may also prefer a 15-year loan. This shorter loan can provide significant savings compared to a 30-year fixed-rate loan.
Borrowers typically need a relatively high income and low debt to get approved for a 15-year mortgage. Given the higher monthly payments, lenders require a lower debt-to-income ratio. For some borrowers, this can make qualifying difficult.
In short: A shorter loan term saves you money in interest charges. A longer loan term lowers your monthly payment and makes it easier to qualify for the loan. Take a look:
|Loan amount||Interest rate||Loan term||Monthly payment||Total interest you will pay|
If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.
The shorter your loan term, the less you pay in interest. The longer your loan term, the lower your monthly payment. The choice between a 15-year mortgage and a 30-year mortgage depends on whether you want to borrow more or pay off the debt faster.
It's also important to consider the opportunity cost of committing to a larger mortgage payment. This could leave you with less money to put toward other goals. For example, the stock market's returns have historically been higher than current mortgage interest rates. Putting off investing in the market in order to pay off your mortgage sooner may ultimately cost you. Some borrowers may prefer a 30-year fixed-rate loan, which they can prepay if they choose, but which doesn't compel them to make high payments every month if they don't want to.
A 15-year mortgage isn't the best option for every borrower every time. Here are some alternatives to consider.
A 30-year fixed-rate mortgage is a home loan that is amortized over 30 years. The interest rate does not change, so the principal-plus-interest payment amount does not change. Your monthly payment is likely to change a little bit periodically as homeowners insurance and property taxes fluctuate.
A VA 30-year loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs, amortized over 30 years. VA loans are also available with shorter terms. These loans have some advantages. One of the biggest is that they don't require a down payment.
To get this loan, you have to provide a Certificate of Eligibility (COE). People who are eligible include:
Visit VA.gov to learn more and find out if you are eligible.
An FHA 30-year loan is a home loan amortized over 30 years and insured by the Federal Housing Administration. These loans are also available with loan terms shorter than 30 years.
FHA loans are easier to qualify for. FHA loans require 3.5% down, which is lower than most conventional loans. Also, you might qualify for an FHA loan with a credit score as low as 580 (most conventional loans require a 620).
A 10-year mortgage is amortized over 10 years. It is a great option for someone who is willing to pay more every month to build equity faster and get out of debt sooner.
A USDA loan is a mortgage insured by the U.S. Department of Agriculture. One benefit is that you don't have to make a down payment.
To be eligible for a USDA loan, your household must have low to moderate income, and the property you buy must be in an eligible location. Most of the U.S. is geographically eligible, but USDA loans are not available in cities. USDA loans are available with different loan terms, such as 15, 20, 25, or 30 years.
When you get an adjustable-rate mortgage, also called an ARM, your interest rate can change. It usually comes with a rate slightly lower than the rate for a comparable fixed-rate home loan. After a specified time and at periodic intervals, the interest rate is adjusted by the lender. For example, your rate might adjust the first time after five years, and then once a year after that. That structure is called a 5/1 ARM.
When your rate is adjusted, it can go up or down. It will be based on fluctuations in a benchmark your lender follows. That benchmark could be a specific index like LIBOR (the London Interbank Offered Rate), or the interest rate on assets like Treasury bills. When you get your loan, your lender tells you the benchmark for your interest rate adjustments.
If you plan to sell the home or pay off your loan within a relatively short time -- particularly before the rate adjusts -- you might save money with an ARM.
A jumbo loan is a loan that exceeds the Federal Housing Finance Agency's thresholds and cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac. In November 2022, the FHFA announced the loan limit values for 2023 are not to exceed $726 for single-family homes.
Check out The Ascent's guide to jumbo loans if you want to learn more.
A 15-year mortgage is a fixed-rate loan amortized over 15 years.
To find the best rates you shop around to get quotes from multiple mortgage lenders.
Lenders offer their best rates to borrowers with excellent credit who meet the down payment and debt-to-income requirements. If you find that you are offered rates higher than advertised rates, talk to the lender about what you can do to get a lower rate.
A 15-year home loan may be a good option if you want to become debt free as soon as possible. It's also a great way to save on overall interest charges, because you pay far less interest on a 15-year mortgage than you would on a 30-year mortgage. You do not have to double the payment to cut the loan term in half.
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