Fixed Rate Mortgages State Employees’ Credit Union

With the loan repayment period cut in half from a traditional 30-year loan, the monthly payment is significantly higher than the 30-year loan. For many, a home purchase is the single biggest purchase they will make in their life, and for some, that cost burden is best spread out over the longest possible period. By refinancing your 15-year mortgage loan, you’ll also be extending your repayment period by another 180 months.

What Is a 15-Year Fixed Mortgage Rate?

That said, 15-year mortgage rates tend to hover around 0.5% – 0.75% lower than their 30-year counterparts. For example, 15-year mortgages have higher monthly payments since you have less time to pay them off. However, if you can’t afford the higher monthly payment of a 15-year mortgage don’t feel alone.

What determines mortgage rates for 15-year loans?

Then choose a lender, finalize your details, and lock in your rate. For the week of January 5th, top offers on Bankrate are X% lower than the national average.On a $340, year loan, this translates to $XXX in annual savings. If you itemize your tax deductions, you may be able to write off the mortgage interest paid on your 15-year mortgage, your property taxes, and any private mortgage insurance (PMI). Keep in mind that you may also need to pay closing costs and get a home appraisal to refinance.

Should I Refinance to a 15-Year Fixed-Rate Mortgage?

And now, it’s really small, so I plan to pay it off within 12 months. If leverage is so great how come we aren’t all buying stock on margin? I think whatever mortgage term gets you to pay off your loan the fastest is the best one to choose. I consider myself somewhat informed when it comes to investments but I have a hard time with the leverage concept. Even when you’re leveraging your money on real estate your still paying interest. I understand the math on leverage, but not paying interest is still better than paying interest IMO.

When does it make sense to refinance to a 15-year rate?

You are guaranteed to pay off your mortgage in 15 years if you keep making your payments. Forced savings is one of the reasons why the average net worth for a homeowner is more than 40X greater than the average net worth of a renter. Once you give someone an option to do something, the conversion rate is guaranteed to be lower than 100% (forced).

There’s a Reason the 30-Year Mortgage Exists

While the ratio of how much of your monthly payments go toward the interest versus the principal changes over the course of the loan, your payments themselves stay the same for the entire 180 months. A 15-year mortgage is best for those who can afford a higher monthly payment, want to build equity faster, and prefer to save on loan costs over their loan term. For example, if you want to pay off your mortgage before retirement or other financial goals, a 15-year mortgage could be ideal. Whether you should choose a 15- or 30-year mortgage depends on your financial situation and priorities.

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After this, your rate will adjust periodically based on current market rates. So with a 5/1 ARM, for example, your mortgage rate will remain fixed for the first five years you have the loan, and then it will change once a year after that. If you can easily afford the monthly payments, want to save on interest and be out from under the burden of debt, the advantages of a 15-year mortgage make it the way to go. The savings are considerable, but only if it doesn’t strain your budget. The decision between a 30-year or 15-year mortgage is one that will impact your finances for decades to come, so be sure to crunch the numbers before deciding which is best. If your aim is to pay off the mortgage sooner and you can afford higher monthly payments, a 15-year loan might be a better choice.

They have lower interest rates than most mortgage loans.

While we adhere to strict editorial integrity, this post may contain references to products from our partners. Whether you should wait to buy a house depends on the market and your financial situation. When interest rates are low, you can potentially save money by locking in a low rate. That’s not to say a 15-year fixed won’t save you a ton of money, or that it’s perhaps a cool rule of thumb when setting out to buy a home. At the same time, it’s also perfectly acceptable to just stick with a 30-year fixed the whole way because it’s often a very cheap debt. The argument is essentially that the 30-year fixed mortgage is a bad deal for homeowners and should be avoided at all costs.

• One mortgage point can lower your mortgage rate by as many as 25 basis points.
• If you have a larger monthly budget and want to be able to own your home outright, you might opt for a shorter term.
• While mortgage rates are higher now compared to recent years, 15-year mortgage rates are still lower than those on 30-year loans — though there’s variation from lender to lender.
• As of 2020 and 2021, the average 15-year fixed mortgage rate has dropped even further to 2.60% and 2.27%, respectively.
• My wife is a teacher and we allocate a portion of her paycheck to covering utilities each month.
• Though we can’t review every available financial company or offer, we strive to make comprehensive, rigorous comparisons in order to highlight the best of them.
• This consent applies even if you are on a corporate, state or national Do Not Call list.
• Borrowing $135,000 less means coming up with $135,000 more in cash or buying a cheaper home.
• Our current home is over 100 years old, renovated 25 years ago but now needs many updates.

Should you refinance to a 15-year loan or another 30-year loan?

• A mortgage is simply a particular type of term loan—one secured by real property.
• First, consider whether your budget can accommodate the higher mortgage payment of a 15-year loan.
• Debt.org wants to help those in debt understand their finances and equip themselves with the tools to manage debt.
• A good source for weekly rates is Freddie Mac’s Primary Mortgage Market Survey, which releases national averages every Thursday and collects historical rates going back to 1971.
• Borrowers should also know that a 15-year mortgage typically has a lower interest rate than a 30-year mortgage.
• On the other hand, a 30-year loan (for $250,000) would result in a $1,194 monthly payment—well under the $1,500 maximum.
• Keep in mind that you need to show the lender that you have enough income to cover a higher payment in order to qualify for the new loan.
• This equity may become valuable in the future when you wish to draw funds from your home for renovations, upgrades, or expansions.

In the long term, 15-year loans can lower your total interest costs and get you out of debt faster. In the short term, however, you’ll face higher monthly payments and less flexibility. One way young homebuyers can break this cycle is by choosing a 15-year mortgage over a 30-year term.

Pros and cons of a 15-year mortgage refinance

• The data shows geographic distribution of loans and applications; ethnicity, race, sex, age, and income of applicants and borrowers; and information about loan approvals and denials.
• Since you’ll be paying less interest than someone with a 30-year fixed mortgage loan, you’ll have less interest to deduct.
• That’s roughly $254 less each month ($3,048 a year) with a longer term.
• Further, the average homeownership tenure was only about 7 years in 2003.
• In this kind of mortgage, the borrower not only pays less interest over time, but typically obtains a lower interest rate than on a traditional 30 year mortgage.
• Mortgage rates decreased over the last few months, but they’ve increased a lot this month.
• As long as you plan on being in your home for a while, a 15-year mortgage could be more beneficial.

With a predictable and stable payment plan and interest rates, this mortgage loan type is perfect for borrowers who wish to settle their loan faster than a 30-year mortgage. A 15-year fixed mortgage may attract a higher monthly payment, but you pay thousands less in interest and build equity in your home much faster. Monthly payments on a 15-year fixed-rate loan will be significantly higher than with a 30-year mortgage. For instance, a $250,000 loan would cost about $1,660 per month in principal and interest at today’s rates versus $1,040 for a 30-year fixed. But, over the lifetime of your loan, you’ll see serious savings on mortgage interest.

Therefore, you will more easily be able to afford a higher monthly payment. Mostly excellent credit scores are getting approved for mortgages and mortgage refinances. This lending stringency is one of the key reasons why the housing market won’t crash any time soon.

Is a Mortgage Pre-Approval Letter Necessary to Make an Offer on a House?

Many individuals barely qualify for the mortgages they take out, and that’s with the much lower 30-year fixed payment. Adding another $500+ in monthly outlay probably won’t fly for most. I hear ya on the benefits of payment discipline of a 15 year vs a 30 year and paying it off sooner. I’m surprised you got a 10/1 ARM for a condotel mortgage in the first place! Perhaps the mortgage market is loosening up b/c I wasn’t able to refinance my condotel mortgage for years.

Who is a 15-year mortgage best for?

As a buyer, you want a monthly payment that leaves enough room in your budget for your other expenses and your savings goals. And you want to minimize your long-term cost so that you’re not unnecessarily spending money on interest that could be going toward other priorities. A major benefit of 15-year mortgages, then, is that the amount of total interest you pay is often a fraction of what you’d pay with an equivalent 30-year loan. That said, you may have to opt for a more modest home if you finance with a 15-year loan since your monthly payment will be higher. In a perfect world, it’d be great if we could all afford the 15-year fixed mortgage payment.

Get Help Choosing the Right Mortgage

By getting a 15-year fixed-rate mortgage, you’ll be taking on a loan with a smaller mortgage rate compared its 30-year fixed counterpart. You’ll also be paying off your mortgage and building home equity at a faster rate. When 15-year fixed mortgage rates are low, owning a home seems more affordable. As rates fall, the demand for housing generally rises and so do home prices. That year, the average annual rate on 15-year fixed mortgages was 6.03%. As the country plunged into another recession, mortgage rates continued to fall.

Investing and retirement

Many borrowers — especially first-time home buyers — simply can’t afford those higher payments, no matter how much it saves them in the end. 15-year fixed-rate loans on average are about 0.5% – 1% lower than 30-year fixed-rate alternatives. This can be appealing to clients who don’t necessarily need to finance a home but prefer to take advantage of the leverage a mortgage provides instead of all-cash offers. You should get rate quotes from multiple mortgage lenders to be sure you’re getting the best rate. Improving your credit score and having a larger down payment will also help.

• The same loan amount and interest rate over 15 years would cost $332,860 by the end of the term.
• One of the reasons as to why you might want to consider refinancing your mortgage to a shorter 15 year fixed is to expedite the goal of paying off your home.
• Based in New York, Katherine graduated summa cum laude from Colgate University with a bachelor’s degree in English literature.
• If a small rate increase would mean financial stress for your household, you may be better off with the certainty of a fixed rate loan.
• First, you could consider refinancing your current mortgage into a 15-year fixed mortgage.
• Fundrise has been around since 2012 and manages over $3 billion in assets for over 350,000 investors.

This is my wife and I’s first home, and it’s on the smaller end, sqft and price range, so felt it was easier to just avoid the effort of dealing with a lender. The lenders would only write a 10/1 ARM on my Condotel, but I pay it off like it is a 15 year mortgage. I have owned for 3.5 years and so far on track to pay it off in under 15 years.

How much more a month is a 15-year mortgage?

Consumers may choose between a 60-day, 75-day or 90-day lock period. Consumers must initiate a mortgage loan application for a specific property and be under purchase contract for the property at least 30 days prior to lock expiration in order to extend the locked rate. All rate lock extensions are subject to Pennymac’s standard rate lock extension fees.

Though monthly payments are higher, this option accelerates loan repayment and results in significant long-term savings. A 15-year mortgage can set you on the path to financial independence at a younger age while also freeing up funds for reinvestment in assets like stocks, bonds or additional real estate. It’s harder to qualify for a 15-year mortgage because a lender needs to determine you can afford the higher monthly payments on your current budget. Minimum credit score and down payment requirements are typically the same for 15- and 30-year fixed mortgages. Never opt for higher monthly mortgage payments at the expense of a retirement plan.

We experienced a mortgage market anomaly where the average 15-year mortgage was much lower than the average 5/1 adjustable rate mortgage. And whenever there is a mortgage market anomaly, you should take full advantage to save the most amount of money. On the other hand, if the borrower asked to borrow money and pay you back in a month, you might not bother to charge an interest rate. There are advantages and disadvantages to consider with a 15-year mortgage. While it could make sense for you specifically, this loan option might not suit every prospective buyer. Note the following information before talking to a lender about a shorter-term mortgage.

In fact, annual mortgage rates in the late 1990s hovered around 7%, on average. If you can afford the larger monthly payment that comes with a 15-year fixed mortgage, it can help you pay off your home, freeing up funds for retirement. You will spend less in interest over the life of the loan compared to a 30-year mortgage, and usually, a 15-year fixed mortgage means a better interest rate. The higher payment requires higher cash reserves—as much as one year’s worth of income in liquid savings. Also, the higher monthly payment means a borrower may forgo the opportunity to build up savings or save for goals such as college tuition for a child or retirement.

That’s roughly $254 less each month ($3,048 a year) with a longer term. For some families, it makes sense to save the extra money or have it as cash on hand for groceries, emergencies or college savings. On the other hand, some families would rather pay off the mortgage as quickly as possible, and have room in their budgets to do so. In general, you’ll find that fixed mortgage rates are higher than adjustable rate mortgage (ARM) rates. Anyone who wants a variable rate mortgage will have a lower mortgage rate at the beginning of their loan term.

However, the household needs to be damn sure about its income-generating future and ability to hold on during bad times. If your mortgage is purchased by one of the government-sponsored companies, like Fannie Mae, you will likely end up paying less in fees for a 15-year loan. In other words, every month, the 15-year mortgage holder is forced to save $2,689 more than the 30-year mortgage holder in this example. And if the house also appreciates over time, then an enormous amount of wealth can automatically be built. Let’s look at the following total interest paid over the life of a $1 million mortgage with three types of terms. This is where you need to take advantage of the kink in the mortgage lending curve.

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Further, the average homeownership tenure was only about 7 years in 2003. Today, post-pandemic, the average homeownership tenure is closer to 10.5 years. Enter your contact information below and a loan officer will reach out to you to assist you with the loan process and answer any questions.

Whether you’re buying or refinancing, Bankrate often has offers well below the national average to help you finance your home for less. Compare rates here, then click “Next” to get started in finding your personalized quotes. On Monday, January 06, 2025, the national average 15-year fixed mortgage APR is 6.38%.

But the trade-off is that you’ll have a larger monthly payment due to the shorter term. Shopping for 15-year refinance rates is similar to the process of finding the best purchase rates. You’ll want current interest rates for 15 year mortgage to have a strong credit score, a low DTI, and sufficient equity in your home. Don’t default to working with your current mortgage lender; get offers from multiple lenders and compare rates and fees.

That said, 15-year loans let you build equity in your home faster and have lower total interest costs because you’re paying interest over a shorter period. You can use our mortgage payment calculator to calculate an estimated monthly payment based on the loan term. Get predictable monthly mortgage loan payments with a fixed rate loan for the duration of your mortgage. Because a 15-year mortgage amortizes over 15 years, a 15-year mortgage will have higher monthly payments than a mortgage that amortizes over a 30-year period. Being able to pay $6,905 a month for a $1 million, 15-year mortgage at 3% requires a much higher income than paying $4,216 a month for a 30-year fixed mortgage. By keeping the 15-year mortgage rate so much lower than other mortgage products, the lenders are willing to give up some margin to secure longer-term profitability in an uncertain future.

This can be advantageous to the lender as it can recoup the loan in half the time as a typical mortgage. Additionally, you’ll typically build equity at a much faster pace with a 15-year mortgage than with a longer term loan. However, because the monthly payment on a 15-year mortgage can be much higher than a 30-year loan, you may not qualify for as much mortgage as you’d hoped. You can estimate the purchase price of a house you may be able to afford using our home affordability calculator.