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.
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.
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.
Do you have a 15- or 30-year fixed-rate loan that you'd like to pay down faster? You might find that making extra payments on your mortgage can help you repay your loan more quickly, and with less interest than making payments according to loan's original payment terms.
Even with the shorter term and lower interest rates of a 15-year mortgage, making extra payments can lead to interest savings. By reducing the principal more quickly, you decrease the amount of interest that accrues, allowing you to save money that can be redirected toward other financial goals.
When you get a 30-year fixed-rate loan, your mortgage lender's risk of not getting paid back is spread over a longer period of time. For this reason, lenders charge higher interest rates on loans with longer terms.
Specific borrowing guidelines must be met to obtain and keep the mortgage. 1 – Borrowers must be over the age of 62. Reverse mortgages are specifically geared to help seniors afford life in retirement. If the original borrowers are both over 62, they can tap the benefits, even if one spouse dies.
One major advantage of a 15-year mortgage is its lower interest rate. Compared to a 30-year loan, a 15-year mortgage can carry an interest rate that's about three-quarters of a percentage point lower. In fact, 15-year loans are some of the cheapest money you'll find.
Age doesn't matter. Counterintuitive as it may sound, your loan application for a mortgage to be repaid over 30 years looks the same to lenders whether you are 90 years old or 40.
Advantages and Disadvantages of a 15-Year Mortgage
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.
Whether you should fix your mortgage for 2 or 5 years depends on you and your individual circumstances. Fixing your mortgage for 2 years can give you certainty and stability in the short-term, and can also be the right choice if you only plan on staying in your home for a few years.
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.
Jitters about inflation and an “unsustainable” path of government borrowing have contributed to the surge in long-term interest rates, taking mortgage rates along for the ride, said Greg McBride, the chief financial analyst at Bankrate. He expects mortgage rates to end 2025 around 6.5 percent.
Dave Ramsey explains why a 15-year mortgage is a homebuyer's best bet. Ramsey bluntly explains how a higher monthly payment on a mortgage is a better option in the long run. The personal finance coach recommends a mortgage payment of equal to or less than 25% of one's monthly income.
A reverse mortgage increases your debt and can use up your equity. While the amount is based on your equity, you're still borrowing the money and paying the lender a fee and interest. Your debt keeps going up (and your equity keeps going down) because interest is added to your balance every month.
Who is not a good candidate for a reverse mortgage? A reverse mortgage is a questionable proposition if you have sufficient income to pay your bills or are willing to sell your home to tap into the equity. If that's the case, it may make more sense to just sell it and downsize your home.
A lot of first-time homebuyers think they need a 20% down payment to qualify for a conventional loan. That's simply not true. Conventional loan down payment requirements are as low as 3%. That's only $9,000 down for a $300,000 home, or $6,000 down for a $200,000 home.
Lenders charge a lower interest rate for 15-year loans because it's easier to make predictions about repayment over a 15-year horizon than a 30-year horizon. Another reason for the savings? Home buyers are borrowing money for half the time, which dramatically reduces the cost of borrowing.
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.
Prepayment penalties can equal a percentage of a mortgage loan amount or the equivalent of a certain number of monthly interest payments. If you're paying off your home loan well in advance, those fees can add up quickly. For example, a 3% prepayment penalty on a $250,000 mortgage would cost you $7,500.