Choosing between 15 year mortgage rates and 30 year mortgage rates is an important decision to make. In the United States, fixed rate mortgages are the most popular options available. In the past, 30 year mortgages were more common, due to the lower monthly expense, but plummeting interest rates and home prices could make 15 year mortgage rates a smarter choice.
A 15 year fixed rate mortgage provides useful benefits for homeowners, but it's important to analyze your own circumstances to find out if you're going to benefit from this mortgage option.
Benefits of 15 Year Mortgage Rates
Choosing fixed 15 year mortgage rates for your loan guarantees that the rate itself won't increase throughout the entire life of the loan. Interest expense remains consistent which allows easier budget planning and reduces risk.
The interest accrued from 15 year mortgage rates is also significantly lower than interest from 30 year mortgage rates, due to the shorter amortization schedule. In fact, interest expense under a 15 year home mortgage is about 60% less than interest from a 30 year mortgage, according to Mortgageloan.com.
A 15 year fixed mortgage also helps homeowners build equity in their home a lot faster because more money from your payment is applied to the principle balance and less towards interest. However, the shorter loan term for 15 year mortgage rates jacks up the amount of your monthly mortgage payment quite a bit, because the interest is not spread out over 30 years. The higher payment leads most people to choose the longer mortgage schedule for their first home purchase.
If you can afford the extra monthly expense, and you're able to apply additional money towards the principle balance monthly, or occasionally, a 15 year fixed mortgage saves thousands of dollars in interest and you would pay off your home in half the time or less. Paying extra money towards the 15 year loan balance accrues equity faster which helps prevent negative equity in case you need to refinance or sell.
Best Uses For Fixed 15 Year Mortgage Rates
People often shop for 15 year mortgage rates for the purpose of refinancing, or to take out a second mortgage. If you have already significantly lowered your loan balance on your current 30 year fixed mortgage, it probably wouldn't make much sense to refinance under the same long-term 30 year mortgage schedule. You would pay off the remainder of your home loan balance faster, and pay less interest, by shopping for the best 15 year mortgage rates and deals.
Selecting a loan with15 year fixed mortgage rates is best if you plan to live in your home for a long time. If you plan to sell your home in a few years than a 15 year mortgage might not save a whole lot in interest, unless you plan to apply extra money towards the balance. The 15 year option also benefits your retirement planning, because you have a good chance to pay off your home so you don't have to spend your retirement money on a loan.
Disadvantages of A 15 Year Fixed Rate Mortgage
The pros outweigh the cons in most cases. The biggest downside is the fact that your monthly payments are going to be higher. If you lose your job, you might find it difficult to afford your payments if you don't have any cash savings.
Closing costs for a 15 year fixed mortgage could also cost a couple thousand dollars or more. If you end up completely unable to afford the extra monthly mortgage expense involved, an early emergency refinance would cost another couple thousand dollars.
Considerations For 15 Year Mortgage Rates Comparing
Visit a financial website listing the best rates and deals available on the market. Read into each offer. The lowest mortgage rates look nice, but likely come with strings attached. Closing costs, points and fees play an important role in the shopping game for a 15 year mortgage. Fixed rate mortgages are recommended over adjustable rate mortgages (ARM).
Sources
Mortgageloan.com: "Rates, Home Prices Make 15-Year Mortgage More Attractive" (Accessed December 18, 2010).
Matt Goetz - Matt began freelance writing in 2007. Matt is a blogger and a freelancer writer for Demand Studios. He also runs a small residential house ...
