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. There are, however, some disadvantages, such as higher monthly payments, less affordability, and less money going toward savings.
A 15-year mortgage is designed to be paid off over 15 years. The interest rate is often lower on a 15-year mortgage, because you make larger payments over less time. The term is half as long as a 30 year mortgage, so you'll pay a lot less interest over the life of the loan.
Since a 15-year mortgage requires larger monthly payments, lenders have stricter requirements to ensure you can repay the loan. So, it may be harder to qualify for a 15-year mortgage than a 30-year mortgage.
The interest rate on a 15-year mortgage is typically lower than a 30-year mortgage, so, if you're able to comfortably pay a mortgage payment on a 15-year loan, it may be a better option. However, if the payment on a 15-year mortgage is tight for your budget, you may desire a 30-year loan with a lower payment.
The 15-Year Advantage: A Faster Path to Payoff
Compared to a 30-year mortgage, more of each payment goes towards the principal right from the start. This means: Faster Debt Reduction: You're shrinking that loan balance quicker. Lower Total Interest: Less time paying interest means you save thousands of dollars overall.
If you're refinancing to a 15-year loan from a 30-year loan, your monthly payment could go up — even with a lower balance overall — because you're paying back the new loan in half the time. Will you remain in your home long enough to break even? Refinancing comes with closing costs.
Guidelines For This Loan
You'll typically need a credit profile above 620. Your debt-to-income ratio (DTI) should be less than 50%. In addition to your down payment, you'll need enough funds to cover closing costs.
Mortgage options for seniors
Conventional loan: You can find conventional mortgages from virtually every type of lender, in terms ranging from eight to 30 years. If you're not making a down payment or don't have an equity level of at least 20 percent, you'll need to pay private mortgage insurance (PMI) premiums.
FHA loans are available with fixed or adjustable rates and for 30- or 15-year terms.
These longer-term loans provide smaller, more manageable monthly payments. However, interest rates on 15-year mortgages tend to be lower than those of 30-year loans. And you're borrowing money for a shorter term, which means your total interest cost will be much lower over the life of your loan.
Credit score
A good credit rating shows us that you have a track record of repaying loans on time. This means you are a lower risk. You are more likely to get a loan approved, sometimes at better rates.
To qualify for a 15-year fixed-rate mortgage, you'll need great credit and a low debt-to-income ratio. In addition, because you'll pay the loan off much faster, you need a better credit score and DTI than you would for a 30-year loan because the risk of default is much higher.
Buying a home is often the biggest financial decision you'll ever make. It's not just about choosing a place to live; it's about making a long-term investment that will impact your financial future for years to come.
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.
Borrowers receiving Social Security benefits can use that income to qualify for a mortgage, including Supplemental Security Income (SSI) and Social Security Disability Insurance (SSDI). Lenders will evaluate your gross Social Security benefit because they use your gross income to qualify you for a loan.
Age isn't a limiting factor, but your income and mobility may be. If you've built up your savings over the years, you may not want a mortgage, preferring to buy a house outright. How Much Is My House Worth? See your free home value estimate in less than two minutes.
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.
15-Year Fixed Mortgage Benefits
Your interest rate is fixed for the life of the loan, so you don't have to worry about rising rates. You can buy a home with as little as 3% down. You can refinance your home for up to 97% of its value.
You can buy a $300,000 house with only $9,000 down when using a conventional mortgage, which is the lowest down payment permitted, unless you qualify for a zero-down-payment VA or USDA loan. Different lenders have different rules, but typically they require a 620 credit score for conventional loan approval.
People with a 15-year term pay more per month than those with a 30-year term. In exchange, they are given a lower interest rate and will pay their loan off faster. Borrowers with a 15-year term pay their debt in half the time and possibly save thousands of dollars over the life of their mortgage.
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.