Mortgage Tips: What Is A 15 Year Fixed Rate Mortgage, Advantages And Disadvantages

A 15 year fixed rate mortgage comes with its own set of advantages which is why there are also lots of borrowers who opt for this mortgage term. For starters, a 15 year fixed rate mortgage allows its home buyers to save thousands of dollars in interest compared to a 30 year fixed rate mortgage. Not only that, homeowners are also able to finish the payment of their loan faster which means that they also build their home equity faster.

Who Should Opt For A 15 Year Fixed Rate Mortgage

This loan term is great for first time home buyers and for people who wants to refinance their current loan. A 15 year fixed rate mortgage allows down payments as low as 5%. This loan term also allows homeowners to get a 95% refinancing on their current loan.

15 Year Fixed Rate Loan Or 30 Year Fixed Rate Loan?

Aside from the time element, the major difference between a 15 year and a 30 year fixed rate mortgage is the total amount of money you will have to shed over the life of the mortgage. A 15 year fixed rate mortgage may require you pay a higher rate per month but you will save big time on interest since the loan term is half as long as a 30 year mortgage. On the other hand, a 30 year mortgage requires a lower monthly payment, which can be more manageable for many. However, if we compute the entire amount paid for interest, a 30 year mortgage results in a higher overall interest payment.

Technically, in the battle between a 15 year and a 30 year mortgage, a borrower has to choose between a lower monthly payment and a lower overall payment. This is why if possible, go for a 15 year loan especially if you can actually afford it. If you can't, this is when you should start considering the 30 year mortgage, as this loan type also has perks of its own, only that it doesn't include saving on interest.