Pros and cons of a 15-year fixed-rate mortgage

Benefits of a 15-year fixed-rate mortgage

While fixed-rate mortgage loans are among the most popular for their safety and stability, some homeowners opt for a shorter term such as the 15-year fixed-rate mortgage to build home equity faster.

Definition of a 15-year fixed-rate mortgage

A 15-year fixed-rate mortgage loan carries the same interest rate and the same monthly payment for the entire loan term. Borrowers of this type of loan are given a list of their loan amortization schedule on their settlement date that shows the payment due for every month of the loan term. Borrowers who pay their property taxes and homeowners insurance from an escrow account held by their mortgage company may see a shift in their monthly payments due to changes in those bills, but the principal and interest will remain steady through the loan period.

Advantages of a 15-year mortgage

There are two main advantages to a 15-year, fixed-rate mortgage. First, most borrowers appreciate the certainty of the size of their principal and interest payments. Second, the shorter loan term means that borrowers are paying off their entire mortgage faster and building equity more quickly than they would with a longer loan period.

In addition, most 15-year mortgage interest rates are lower than the rate charged for a 30-year fixed-rate mortgage.

Disadvantages of a 15-year mortgage

As with all fixed-rate mortgage loans, the main disadvantage is that the payments and interest rate are fixed, so borrowers cannot take advantage of lower interest rates without an expensive refinance into a new home loan.

Another disadvantage of a 15-year mortgage is that the monthly payments are higher than they would be with a longer loan term.

15-year mortgage borrowers

Homeowners or buyers interested in owning their home without any mortgage as soon as possible are most likely to opt for a 15-year fixed-rate loan. The shorter loan term is especially appealing for borrowers who want to meet a deadline of paying off their loan in full before college tuition is due or before retiring. These loans are more popular when interest rates are low, which makes the principal and interest payments more affordable even on a short term loan.

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