A 15 Year Fixed Rate Mortgage is a loan with the same interest rate and monthly payment over the 15 year life of the loan. You generally pay a lower interest rate, pay less interest over the life of the loan, and build equity more quickly with a 15 year loan than with a loan carrying a longer term.
A 15 year fixed rate mortgage allows you to build equity relatively quickly. With this type of mortgage, the term of the loan is only a 15 years instead of the more typical 30 years. The monthly payments are higher with a 15 year mortgage than a 30 year mortgage, but a 15 year loan can provide many advantages if you can afford it.
A fixed rate mortgage is usually fully amortizing, meaning that your payments combine the principal and interest so that the full amount of the loan is paid off after a set amount of years. With a 15 year fixed rate mortgage, the loan is fully amortized, or paid off, after 15 years as long as no changes have been made to the terms of the loan.
With any loan, a portion of the monthly payment has to go to interest. This can be frustrating since your payment is not paying back the actual loan, but instead paying the fee for borrowing the money. Since the term on a 15 year fixed rate mortgage is half as long as a 30 year mortgage, the overall interest you pay over the life of the loan is less.
A 15 year fixed rate mortgage allows you to build equity in your home faster than if you had a 30 year fixed mortgage. Your monthly payments are higher with a 15 year mortgage, so you are paying more toward your principal.
An important factor to consider when choosing a loan is how long you plan to stay in the house. If you are likely to move within a few years, then the higher monthly payments of a 15 year mortgage may not be worth it to you. You’ll be paying more interest upfront even though you will not keep the mortgage that long. On the other hand, a 15 year fixed rate mortgage also means you’ll build equity faster. That equity is money that would be available to you when you sell or if you refinance.
Before getting a 15 year fixed rate mortgage, be sure to realize that with the benefit of lower interest rate and larger equity comes the drawback of higher payments. However, if you can afford the higher payment and want to build equity quickly, a 15 year fixed rate mortgage may be right for you.