A shorter term, like a 15-year mortgage, combined with a potentially lower interest rate means you're likely to pay significantly less in total interest compared to a longer, 30-year term. This illustrates the significant interest savings of choosing a shorter mortgage term.
Interest rates are often lower for long-term loans. This can mean lower monthly payments, so you may be able to afford a long-term loan more easily than a short-term one. However, a long-term loan with a lower interest rate isn't necessarily cheaper than a short-term loan with a higher interest rate.
There are advantages and disadvantages to both 15-year and 30-year home loans. 15-year loans have lower interest rates and will be paid off faster, but carry higher monthly payments.
Why is a 15-year fixed-rate mortgage better than a 30-year? 15-year refers to the term, or length in years, of the mortgage. With a 30-year mortgage, you'll end up paying almost twice the price of the house.
Some borrowers opt for the 15-year vs. a 30-year mortgage (a more conventional choice) since it can save them a significant amount of money in the long term. The 15-year mortgage has some advantages when compared to the 30-year, such as less overall interest paid, a lower interest rate, lower fees, and forced savings.
Disadvantages of a 15-year fixed mortgage
Larger monthly payments: A loan term that's half as long means your monthly payments will be larger than they would be with a 30-year mortgage. Potentially tougher qualification requirements: Your lender will want to verify that you make enough to afford these larger payments.
If you originally got a 15-year mortgage but find the payments challenging, refinancing to a 30-year loan can lower your payments by as much as several hundred dollars each month. Conversely, if you have a 30-year mortgage, a 15-year term can help you build equity much faster.
Traditionally, 10-year fixed-rate mortgages have been the longest widely available. Over the past couple of years, 15-year, 30-year, and even 40-year fixed-rate deals have become available, with one lender even securing a licence to offer a 50-year fixed-rate mortgage term in the future.
Today's national 15-year mortgage rate trends
For today, Monday, January 13, 2025, the national average 15-year fixed mortgage interest rate is 6.35%, up compared to last week's rate of 6.30%. The national average 15-year fixed refinance interest rate is 6.37%, up compared to last week's rate of 6.33%.
Lenders consider long-term loans riskier and consequently charge higher interest rates for them.
The first con of long-term financing is that it can result in a higher interest rate. So while the lender can look forward to a stream of income for a more extended period, on the other hand, they'll be facing long-term risk too. As a result, they increase the interest rate to earn from the increased risk they take.
You save more than half the amount of interest of a 30-year mortgage. Lenders usually offer this mortgage at a slightly lower interest rate than with 30-year loans – typically up to . 5% lower. It is this lower interest rate added to the shorter loan life that creates real savings for 15-year fixed rate borrowers.
Cons: Higher total interest: With a 30-year mortgage, you'll likely have a higher interest rate compared to a 20-year mortgage. Additionally, you'll be making monthly payments for ten years longer, so you'll pay considerably more interest cumulatively.
Since you're making bigger monthly payments on a 15-year mortgage, you'll pay down the interest a lot faster, which means more of your payment will go to the principal every month. On the flip side, the smaller monthly payments of a 30-year mortgage will have you paying down the interest a lot slower.
The term of a mortgage is the length of time a lender will loan mortgage funds to a borrower. This duration can be from six months to ten years, with two to five years being the most common. Generally, the shorter the duration of a mortgage term, the lower the interest rate, and the less it costs to borrow the money.
Best fixed savings bonds
Currently the top paying year fixed rate is 4.77%, but it's only available across a one year term. For a longer period, there's a five year fixed rate at 4.5% – this deal can be viewed here.
Reduce your loan term
Making the equivalent of two extra mortgage payments per year, for example, will knock off 9 years and 4 months from the total term of your loan. A shorter mortgage term also means that you'll own your house outright sooner.
However, a 15-year mortgage enables you to pay less interest, build equity faster, and typically offers a lower rate compared to a 30-year mortgage.
You will complete a mortgage application and the lender will verify the information you provide. They'll also perform a credit check. If you're preapproved, you'll receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount, good for 90 days.