15-year Fixed Rate Mortgages
| Week | 30-year-Fixed | 15-year-Fixed | 5-year-ARM |
|---|---|---|---|
| 09/29 | 6.700% | 5.960% | 5.300% |
| 09/22 | 6.290% | 5.440% | 4.970% |
| 09/15 | 6.020% | 5.210% | 4.930% |
| 09/01 | 5.660% | 4.980% | 4.510% |
| 08/25 | 5.550% | 4.850% | 4.360% |
| 08/18 | 5.130% | 4.550% | 4.390% |
| 08/11 | 5.220% | 4.590% | 4.430% |
| 08/04 | 4.990% | 4.260% | 4.250% |
| 07/28 | 5.300% | 4.580% | 4.290% |
| 07/21 | 5.540% | 4.750% | 4.310% |
| 07/14 | 5.510% | 4.670% | 4.350% |
| 07/07 | 5.300% | 4.450% | 4.190% |
- Rate changes: Never; fully fixed for entire term
- Benefits: Stable payments; builds equity faster; lower total interest costs than 30-year term
- Alternative Strategy: Consider 30-year term and prepaying loan to preserve cash-flow flexibility
- Useful for: Refinancing to lower total interest cost; retiring mortgage more quickly; building or rebuilding equity more quickly
- Consider if: Buying second home; refinancing to build equity; paying off mortgage before life event (retirement, etc)
- When shopping, ask about: If 15-year term makes the payment too high, whether 20-year term is available
What is a 15-year fixed-rate mortgage?
A loan used for purchasing or refinancing a home with an interest rate that never changes and a repayment term of fifteen years.
Why choose a 15-year fixed-rate mortgage (FRM)?
Like its 30-year sibling, your interest rate (and the mortgage's principal and interest payment) will never change. With a term half as long as a traditional 30-year FRM, you'll build equity more quickly and at lower total interest costs.
Should I choose a 15-year FRM?
While the overall answer is "yes," the reality is that shorter-term mortgages carry higher monthly payments despite lower contract interest rates than those with 30-year terms. This can make qualifying for a mortgage difficult, especially for first-time buyers. Even if you can, the higher monthly commitment for a 15-year mortgage may curtail needed flexibility in your budget to cover other expenses or goals, such as saving for retirement or paying down student-loan debt. Fifteen-year FRMs are often best for homeowners looking to refinance or those who have the ability to manage higher monthly payment comfortably.
What are the advantages of a 15-year FRM?
A 15-year FRM builds equity far more quickly than does a loan with a 30-year term and at much lower total interest costs overall. For example, after 7 years of a $200,000 15-year loan at 3.75% versus a 30-year loan at 4.75%, the 15-year term will have saved you almost $20,000 in interest cost and your remaining loan balance would be almost $55,000 less.
What are the disadvantages of a 15-year FRM?
If there is one drawback to a 15-year FRM compared against a 30-year it is that the monthly payment is considerably higher for the shorter-term loan; using the example above, more than $400 per month more. The higher payment means that a borrower with a given income can borrow much less money, making it hard to compete in today's high-priced housing markets. All things being equal, a borrower buying a median-priced home of $266,800 with a 20 percent down payment will need $61,626 in income with a 30-year mortgage -- or $80,433 with a 15-year term. Conversely, someone who has that $61,626 to qualify for a 30-year term can only cover a purchase price of $191,380 with a 15-year term and may not be able to locate suitable homes in desirable markets with this lower amount.
Is a 15-year, fixed-rate mortgage a good choice when buying a home?
Yes, provided qualification isn't an issue and there aren't better or more appropriate uses or unmet financial needs for those funds. One fairly common workaround is to select a 20-year term, or select a 30-year term and prepay the mortgage to achieve at least some term reduction and savings.
Are 15-year, fixed-rate mortgages a good choice for refinancing?
They often are, especially for homeowners well along in an existing 30-year mortgage; these can be used to chop years off of a remaining mortgage term, and often at the same or even lower than their current monthly payment. That said, there are other reasons for refinancing (such as improving cash-flow or draining equity from the property) so a 15-year FRM isn't a one-size fits all option.
Are there alternatives to a 15-year FRM?
As noted above, if a 15-year term brings a payment too high to comfortably handle, a 20-year term might do the trick, bringing similar interest savings and equity building but with a lower monthly obligation. As well, you might take a 20-year term, and when you feel more comfortable, prepay the mortgage to create a 15-year term.