30-Year fixed rate vs 15-Year fixed rate
For most home-buyers, there is only one type of mortgage; the traditional 30-year fixed rate type their parents had, and the path that several generations of Americans have taken to first-time home ownership. The Mortgage Bankers Association says 86% of people applying for purchase mortgages in February 2015 opted for 30-year loans. The main reason for this choice is the advantage of getting lower monthly payments than a 15-year fixed rate loan can offer, making it appear more affordable.
The structure of a 15-year fixed rate mortgage is similar to that of the more popular 30-year mortgage, with the main difference being the term of the loan. Considering the reduction in today’s mortgage rates, the 15-year fixed rate mortgage offers home buyers a great deal when it comes to getting a home loan, if they can manage the monthly payments. Ultimately, the reduction in mortgage costs over the length of the loan term can be significant enough to make it worth adjusting the budget to handle a slightly larger monthly payment.
A shorter-term loan means a higher monthly payment, which makes the 15-year mortgage seem less affordable. But, in fact, the shorter term makes the loan less expensive in more ways than one – over the full life of a loan, a 30-year-mortgage will end up costing more than double the 15-year option.
Less mortgage interest is accrued by the homeowner each month with the 15-year loan because interest rates are lower, so less money is repaid to the bank. This makes the 15-year fixed-rate loan ideal for long-term savers. Mortgage rates for a 15-year fixed-rate mortgage are almost always lower than the rates on longer-term loans. The loan is paid in full after 15 years, half the time of a 30-year loan.
The combination of lower rates and a shorter term means that, over the life of a loan, homeowners using a 15-year fixed rate mortgage will save hundreds of thousands of dollars. With a 15-year fixed rate mortgage loan payments are heavy on principal, light on interest, and finished in 180 months. If you’re interested in paying less to pay off your home, the 15-year mortgage is your best option.
If you are interested in a mortgage in Colorado Springs, or have more questions concerning loan options, please feel free to give us a call at (719) 638-0531. Our loan experts are happy to speak with you and help you make the best financial decision for your future.