Overview of the 15-Year Fixed Rate Mortgage
A 15-year fixed rate mortgage is a loan that has the same interest rate and the same monthly payments over the life of the loan. Generally speaking, as you pay the loan down you will pay a lower interest rate and less interest on the loan. As a result you will be able to build more equity in your home quicker with a 15-year loan that you would with a 20 or 30-year loan.
When you take out a 15-year fixed rate mortgage you are given a list of your loan amortization schedule which will show you the payments due for every month of your loan. If you pay your property taxes and homeowners insurance from an escrow account, there may be a slight shift in your monthly payments from time to time. But not matter what, your interest and principal will remain the same for the entire 15 year period.
There are two main advantages that come along with a 15-year fixed rate mortgage. The first one being the certainty of knowing exactly how much your principal and interest will be for the life of the loan. You never have to worry about your monthly payments going up. The second one being the fact that it is a shorter term loan.
With a shorter term loan you will be able to pay off your mortgage much faster and build equity much quicker. Another advantage is the interest rates. You will usually find 15-year fixed rate mortgages have a lower interest rate than a 30-year fixed rate mortgage.
And while all of these advantages are great, there are also a few disadvantages you should be aware of. The biggest disadvantage is the fact that it is a fixed rate. When you have a fixed rate mortgage your payments and your interest are set for the life of the loan. That means if rates go down you would have to go through an expensive refinancing process to take advantage of them.
Another disadvantage is the amount of the monthly payments. Since your loan is only 15 years, your payments will be quite a bit higher than they would if you opted for a 20 or 30-year loan. However, if you can afford those higher payments, it will be well worth it since your home will be paid off quicker.
So if you are looking to own your home as quickly as possible, a 15-year fixed rate mortgage is the way to go. Just make sure you can afford the higher payments before you sign on the dotted line. This is a great option for those who want to pay off their mortgage before they retire or before the kids head off to college. While 30-year fixed rate mortgages are popular all the time, 15-year fixed rate mortgages tend to be more popular when the interest rates are low. The idea is to do your research and find the type of mortgage that is best for you and your financial situation.