15 Year Fixed Rate Mortgage Calculator
Use this free tool to figure your monthly payments on a 15-year FRM for a given loan amount. Current 15-year Exton home loan rates are shown beneath the calculator.
Current Exton 15-Year Mortgage Rates on a $220,000 Home Loan
The following table highlights locally available current mortgage rates. By default 15-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Amortization Schedule for a $220,000.00 15-Year FRM Refi Home Loan @ 3.80% APR
| Year | Month | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | 1 | $696.67 | $908.69 | $219,091.31 |
| 1 | 2 | $693.79 | $911.56 | $218,179.75 |
| 1 | 3 | $690.90 | $914.45 | $217,265.30 |
| 1 | 4 | $688.01 | $917.35 | $216,347.96 |
| 1 | 5 | $685.10 | $920.25 | $215,427.71 |
| 1 | 6 | $682.19 | $923.16 | $214,504.54 |
| 1 | 7 | $679.26 | $926.09 | $213,578.45 |
| 1 | 8 | $676.33 | $929.02 | $212,649.43 |
| 1 | 9 | $673.39 | $931.96 | $211,717.47 |
| 1 | 10 | $670.44 | $934.91 | $210,782.56 |
| 1 | 11 | $667.48 | $937.87 | $209,844.68 |
| 1 | 12 | $664.51 | $940.84 | $208,903.84 |
| Year 1 | $8,168.07 | $11,096.16 | $208,903.84 | |
| 2 | 1 | $661.53 | $943.82 | $207,960.02 |
| 2 | 2 | $658.54 | $946.81 | $207,013.20 |
| 2 | 3 | $655.54 | $949.81 | $206,063.39 |
| 2 | 4 | $652.53 | $952.82 | $205,110.58 |
| 2 | 5 | $649.52 | $955.84 | $204,154.74 |
| 2 | 6 | $646.49 | $958.86 | $203,195.88 |
| 2 | 7 | $643.45 | $961.90 | $202,233.98 |
| 2 | 8 | $640.41 | $964.94 | $201,269.04 |
| 2 | 9 | $637.35 | $968.00 | $200,301.04 |
| 2 | 10 | $634.29 | $971.07 | $199,329.97 |
| 2 | 11 | $631.21 | $974.14 | $198,355.83 |
| 2 | 12 | $628.13 | $977.23 | $197,378.60 |
| Year 2 | $7,738.99 | $11,525.24 | $197,378.60 | |
| 3 | 1 | $625.03 | $980.32 | $196,398.28 |
| 3 | 2 | $621.93 | $983.42 | $195,414.86 |
| 3 | 3 | $618.81 | $986.54 | $194,428.32 |
| 3 | 4 | $615.69 | $989.66 | $193,438.66 |
| 3 | 5 | $612.56 | $992.80 | $192,445.86 |
| 3 | 6 | $609.41 | $995.94 | $191,449.92 |
| 3 | 7 | $606.26 | $999.09 | $190,450.83 |
| 3 | 8 | $603.09 | $1,002.26 | $189,448.57 |
| 3 | 9 | $599.92 | $1,005.43 | $188,443.14 |
| 3 | 10 | $596.74 | $1,008.62 | $187,434.52 |
| 3 | 11 | $593.54 | $1,011.81 | $186,422.71 |
| 3 | 12 | $590.34 | $1,015.01 | $185,407.70 |
| Year 3 | $7,293.32 | $11,970.90 | $185,407.70 | |
| 4 | 1 | $587.12 | $1,018.23 | $184,389.47 |
| 4 | 2 | $583.90 | $1,021.45 | $183,368.02 |
| 4 | 3 | $580.67 | $1,024.69 | $182,343.33 |
| 4 | 4 | $577.42 | $1,027.93 | $181,315.40 |
| 4 | 5 | $574.17 | $1,031.19 | $180,284.22 |
| 4 | 6 | $570.90 | $1,034.45 | $179,249.76 |
| 4 | 7 | $567.62 | $1,037.73 | $178,212.04 |
| 4 | 8 | $564.34 | $1,041.01 | $177,171.02 |
| 4 | 9 | $561.04 | $1,044.31 | $176,126.71 |
| 4 | 10 | $557.73 | $1,047.62 | $175,079.09 |
| 4 | 11 | $554.42 | $1,050.93 | $174,028.16 |
| 4 | 12 | $551.09 | $1,054.26 | $172,973.90 |
| Year 4 | $6,830.42 | $12,433.80 | $172,973.90 | |
| 5 | 1 | $547.75 | $1,057.60 | $171,916.29 |
| 5 | 2 | $544.40 | $1,060.95 | $170,855.34 |
| 5 | 3 | $541.04 | $1,064.31 | $169,791.03 |
| 5 | 4 | $537.67 | $1,067.68 | $168,723.35 |
| 5 | 5 | $534.29 | $1,071.06 | $167,652.29 |
| 5 | 6 | $530.90 | $1,074.45 | $166,577.84 |
| 5 | 7 | $527.50 | $1,077.86 | $165,499.98 |
| 5 | 8 | $524.08 | $1,081.27 | $164,418.71 |
| 5 | 9 | $520.66 | $1,084.69 | $163,334.02 |
| 5 | 10 | $517.22 | $1,088.13 | $162,245.89 |
| 5 | 11 | $513.78 | $1,091.57 | $161,154.32 |
| 5 | 12 | $510.32 | $1,095.03 | $160,059.29 |
| Year 5 | $6,349.62 | $12,914.61 | $160,059.29 | |
| 6 | 1 | $506.85 | $1,098.50 | $158,960.79 |
| 6 | 2 | $503.38 | $1,101.98 | $157,858.82 |
| 6 | 3 | $499.89 | $1,105.47 | $156,753.35 |
| 6 | 4 | $496.39 | $1,108.97 | $155,644.38 |
| 6 | 5 | $492.87 | $1,112.48 | $154,531.91 |
| 6 | 6 | $489.35 | $1,116.00 | $153,415.90 |
| 6 | 7 | $485.82 | $1,119.54 | $152,296.37 |
| 6 | 8 | $482.27 | $1,123.08 | $151,173.29 |
| 6 | 9 | $478.72 | $1,126.64 | $150,046.65 |
| 6 | 10 | $475.15 | $1,130.20 | $148,916.45 |
| 6 | 11 | $471.57 | $1,133.78 | $147,782.66 |
| 6 | 12 | $467.98 | $1,137.37 | $146,645.29 |
| Year 6 | $5,850.23 | $13,414.00 | $146,645.29 | |
| 7 | 1 | $464.38 | $1,140.98 | $145,504.32 |
| 7 | 2 | $460.76 | $1,144.59 | $144,359.73 |
| 7 | 3 | $457.14 | $1,148.21 | $143,211.51 |
| 7 | 4 | $453.50 | $1,151.85 | $142,059.67 |
| 7 | 5 | $449.86 | $1,155.50 | $140,904.17 |
| 7 | 6 | $446.20 | $1,159.16 | $139,745.01 |
| 7 | 7 | $442.53 | $1,162.83 | $138,582.19 |
| 7 | 8 | $438.84 | $1,166.51 | $137,415.68 |
| 7 | 9 | $435.15 | $1,170.20 | $136,245.48 |
| 7 | 10 | $431.44 | $1,173.91 | $135,071.57 |
| 7 | 11 | $427.73 | $1,177.63 | $133,893.94 |
| 7 | 12 | $424.00 | $1,181.35 | $132,712.59 |
| Year 7 | $5,331.52 | $13,932.70 | $132,712.59 | |
| 8 | 1 | $420.26 | $1,185.10 | $131,527.49 |
| 8 | 2 | $416.50 | $1,188.85 | $130,338.64 |
| 8 | 3 | $412.74 | $1,192.61 | $129,146.03 |
| 8 | 4 | $408.96 | $1,196.39 | $127,949.64 |
| 8 | 5 | $405.17 | $1,200.18 | $126,749.46 |
| 8 | 6 | $401.37 | $1,203.98 | $125,545.48 |
| 8 | 7 | $397.56 | $1,207.79 | $124,337.69 |
| 8 | 8 | $393.74 | $1,211.62 | $123,126.08 |
| 8 | 9 | $389.90 | $1,215.45 | $121,910.62 |
| 8 | 10 | $386.05 | $1,219.30 | $120,691.32 |
| 8 | 11 | $382.19 | $1,223.16 | $119,468.16 |
| 8 | 12 | $378.32 | $1,227.04 | $118,241.12 |
| Year 8 | $4,792.76 | $14,471.47 | $118,241.12 | |
| 9 | 1 | $374.43 | $1,230.92 | $117,010.20 |
| 9 | 2 | $370.53 | $1,234.82 | $115,775.38 |
| 9 | 3 | $366.62 | $1,238.73 | $114,536.65 |
| 9 | 4 | $362.70 | $1,242.65 | $113,294.00 |
| 9 | 5 | $358.76 | $1,246.59 | $112,047.41 |
| 9 | 6 | $354.82 | $1,250.54 | $110,796.87 |
| 9 | 7 | $350.86 | $1,254.50 | $109,542.38 |
| 9 | 8 | $346.88 | $1,258.47 | $108,283.91 |
| 9 | 9 | $342.90 | $1,262.45 | $107,021.46 |
| 9 | 10 | $338.90 | $1,266.45 | $105,755.01 |
| 9 | 11 | $334.89 | $1,270.46 | $104,484.55 |
| 9 | 12 | $330.87 | $1,274.48 | $103,210.06 |
| Year 9 | $4,233.16 | $15,031.06 | $103,210.06 | |
| 10 | 1 | $326.83 | $1,278.52 | $101,931.54 |
| 10 | 2 | $322.78 | $1,282.57 | $100,648.97 |
| 10 | 3 | $318.72 | $1,286.63 | $99,362.34 |
| 10 | 4 | $314.65 | $1,290.70 | $98,071.64 |
| 10 | 5 | $310.56 | $1,294.79 | $96,776.85 |
| 10 | 6 | $306.46 | $1,298.89 | $95,477.95 |
| 10 | 7 | $302.35 | $1,303.01 | $94,174.95 |
| 10 | 8 | $298.22 | $1,307.13 | $92,867.82 |
| 10 | 9 | $294.08 | $1,311.27 | $91,556.55 |
| 10 | 10 | $289.93 | $1,315.42 | $90,241.12 |
| 10 | 11 | $285.76 | $1,319.59 | $88,921.53 |
| 10 | 12 | $281.58 | $1,323.77 | $87,597.77 |
| Year 10 | $3,651.93 | $15,612.29 | $87,597.77 | |
| 11 | 1 | $277.39 | $1,327.96 | $86,269.81 |
| 11 | 2 | $273.19 | $1,332.16 | $84,937.64 |
| 11 | 3 | $268.97 | $1,336.38 | $83,601.26 |
| 11 | 4 | $264.74 | $1,340.61 | $82,260.65 |
| 11 | 5 | $260.49 | $1,344.86 | $80,915.79 |
| 11 | 6 | $256.23 | $1,349.12 | $79,566.67 |
| 11 | 7 | $251.96 | $1,353.39 | $78,213.28 |
| 11 | 8 | $247.68 | $1,357.68 | $76,855.60 |
| 11 | 9 | $243.38 | $1,361.98 | $75,493.62 |
| 11 | 10 | $239.06 | $1,366.29 | $74,127.33 |
| 11 | 11 | $234.74 | $1,370.62 | $72,756.72 |
| 11 | 12 | $230.40 | $1,374.96 | $71,381.76 |
| Year 11 | $3,048.22 | $16,216.00 | $71,381.76 | |
| 12 | 1 | $226.04 | $1,379.31 | $70,002.45 |
| 12 | 2 | $221.67 | $1,383.68 | $68,618.77 |
| 12 | 3 | $217.29 | $1,388.06 | $67,230.72 |
| 12 | 4 | $212.90 | $1,392.45 | $65,838.26 |
| 12 | 5 | $208.49 | $1,396.86 | $64,441.40 |
| 12 | 6 | $204.06 | $1,401.29 | $63,040.11 |
| 12 | 7 | $199.63 | $1,405.73 | $61,634.38 |
| 12 | 8 | $195.18 | $1,410.18 | $60,224.21 |
| 12 | 9 | $190.71 | $1,414.64 | $58,809.56 |
| 12 | 10 | $186.23 | $1,419.12 | $57,390.44 |
| 12 | 11 | $181.74 | $1,423.62 | $55,966.83 |
| 12 | 12 | $177.23 | $1,428.12 | $54,538.70 |
| Year 12 | $2,421.17 | $16,843.06 | $54,538.70 | |
| 13 | 1 | $172.71 | $1,432.65 | $53,106.06 |
| 13 | 2 | $168.17 | $1,437.18 | $51,668.87 |
| 13 | 3 | $163.62 | $1,441.73 | $50,227.14 |
| 13 | 4 | $159.05 | $1,446.30 | $48,780.84 |
| 13 | 5 | $154.47 | $1,450.88 | $47,329.96 |
| 13 | 6 | $149.88 | $1,455.47 | $45,874.49 |
| 13 | 7 | $145.27 | $1,460.08 | $44,414.40 |
| 13 | 8 | $140.65 | $1,464.71 | $42,949.70 |
| 13 | 9 | $136.01 | $1,469.34 | $41,480.35 |
| 13 | 10 | $131.35 | $1,474.00 | $40,006.36 |
| 13 | 11 | $126.69 | $1,478.67 | $38,527.69 |
| 13 | 12 | $122.00 | $1,483.35 | $37,044.34 |
| Year 13 | $1,769.86 | $17,494.36 | $37,044.34 | |
| 14 | 1 | $117.31 | $1,488.05 | $35,556.30 |
| 14 | 2 | $112.59 | $1,492.76 | $34,063.54 |
| 14 | 3 | $107.87 | $1,497.48 | $32,566.06 |
| 14 | 4 | $103.13 | $1,502.23 | $31,063.83 |
| 14 | 5 | $98.37 | $1,506.98 | $29,556.85 |
| 14 | 6 | $93.60 | $1,511.76 | $28,045.09 |
| 14 | 7 | $88.81 | $1,516.54 | $26,528.55 |
| 14 | 8 | $84.01 | $1,521.35 | $25,007.20 |
| 14 | 9 | $79.19 | $1,526.16 | $23,481.04 |
| 14 | 10 | $74.36 | $1,531.00 | $21,950.05 |
| 14 | 11 | $69.51 | $1,535.84 | $20,414.20 |
| 14 | 12 | $64.64 | $1,540.71 | $18,873.49 |
| Year 14 | $1,093.38 | $18,170.85 | $18,873.49 | |
| 15 | 1 | $59.77 | $1,545.59 | $17,327.91 |
| 15 | 2 | $54.87 | $1,550.48 | $15,777.43 |
| 15 | 3 | $49.96 | $1,555.39 | $14,222.04 |
| 15 | 4 | $45.04 | $1,560.32 | $12,661.72 |
| 15 | 5 | $40.10 | $1,565.26 | $11,096.47 |
| 15 | 6 | $35.14 | $1,570.21 | $9,526.25 |
| 15 | 7 | $30.17 | $1,575.19 | $7,951.07 |
| 15 | 8 | $25.18 | $1,580.17 | $6,370.89 |
| 15 | 9 | $20.17 | $1,585.18 | $4,785.71 |
| 15 | 10 | $15.15 | $1,590.20 | $3,195.52 |
| 15 | 11 | $10.12 | $1,595.23 | $1,600.28 |
| 15 | 12 | $5.07 | $1,600.28 | $0.00 |
| Year 15 | $390.73 | $18,873.49 | $0.00 | |
The Essential Guide to Taking 15-Year Fixed Mortgages
Before buying a house in the near future, it’s crucial to understand your mortgages options. And with different loan terms and payment structures in the market, it might be hard to decide on the right kind of loan.
For instance, you’ll notice many homeowners with 30-year fixed-rate loans. Meanwhile, there are shorter payment terms available in the market, such as 15-year fixed mortgages. You might be wondering, when is it a good idea to get a 15-year fixed mortgage? It’s also worth asking its benefits and drawbacks. You should also know the requirements you must satisfy to be eligible for this type of loan.
Our article will explain how 15-year fixed mortgages work, including its pros and cos. We’ll discuss different types of loans that come with 15-year fixed terms, as well as how shorter loans can help increase your mortgage savings.
How 15-Year Fixed-Rate Loans Work
A 15-year fixed-rate mortgage (FRM) is a type of home loan with a repayment duration of 15 years. Its interest rate stays locked for the entire term, resulting in predictable monthly principal and interest payments. 15-year fixed mortgages also come with lower rates than longer payment durations. Compared to a 30-year fixed mortgage, 15-year fixed rate rates are usually lower by 0.25% to 1%.
Unlike adjustable-rate mortgages (ARM), loans with fixed-rates do not change even if general market rates increase. This guarantees the same amount, so you need not worry about rising mortgage payments. And because your payments are predictable, it’s easier to calculate and monitor your finances.
FRMs adhere to a regular amortization schedule, which breaks down the exact number of payments required. A 15-year FRM has 180 payments spread throughout 15 years. Meanwhile, for a 30-year FRM, there are 360 payments spread across 30 years. Assuming you always pay on time, your mortgage should be paid off within the agreed term.
You can use the above calculator to generate a sample amortization schedule.
The amortization schedule also breaks down how much of your payment is applied to your loan’s principal and interest each month.
- Principal: This is the loan amount you borrowed to purchase your home. The principal balance indicates how much you still owe your lender to pay off your mortgage.
- Interest: Lenders charge a corresponding interest rate to service your loan. Expect higher interest costs when you borrow a larger principal. Interest costs are also higher when you take longer to pay off your loan. For this reason, 30-year fixed mortgages come with greater interest charges than 15-year fixed-rate loans.
Just How Popular are 15-Year Fixed Mortgages?
15-year FRMs are the second widely purchased home financing product in the US. Since it’s a short term, it’s also a popular refinancing tool for homeowners. On the other hand, the 30-year fixed-rate loan remains the most popular mortgage product in America. 30-year FRMs come with more affordable monthly payments than 15-year fixed loans, making them more attractive to homebuyers.
The following data shows the market share of mortgage products for new loan originations as of October 2020. It’s taken from the Urban Institute Housing Finance at a Glance: Monthly Chartbook, released in December 2020.
| Mortgage Product | Market Share (October 2020) |
|---|---|
| 30-Year FRM | 74.2% |
| 15-Year FRM | 16.9% |
| ARM | 0.9% |
| Other (10 & 20-year fixed terms, etc.) | 8% |
While it’s a loan purchase tool, 15-year fixed mortgages are predominantly used as a refinancing product. The Urban Institute notes that in October 2019, the share of 15-year fixed mortgages was only at 10.1%. But by October 2020, this grew to 16.9%. This is primarily due to the refinance boom caused by record low rates. Because of the COVID-19 crisis in 2020, the Federal Reserve announced it will keep benchmark rates near zero at least until 2023.
Meanwhile, the Urban Institute reported that 30-year FRMs made up 74.2% of new loan originations in 2020, while 0.9% accounted for ARMs. The remaining 8% represented other types of mortgage products, such as 10-year and 20-year fixed-rate loans.
Mortgage Refinancing
Refinancing is the process of changing your current mortgage into better terms with a new loan. This allows you to secure a lower rate, change your payment term, or both. With refinancing, you can shorten a 30-year FRM into a 15-year FRM. Besides reducing your rate and term, it allows you to shift from a government-backed mortgage into a conventional mortgage to remove mortgage insurance premium. Others also refinance to shift from an ARM to FRM to secure a lower rate. Refinancing is usually a viable option when general market rates are low and if you’ll stay for a long time in your house.
Before you decide to refinance, consider the qualifications. Borrowers must have a credit score of at least 620 to be eligible. But to get the most competitive rates, it’s better to have a credit score of 700 and above. Next, you must prepare a significant amount. Closing costs for refinances range between 3% to 6% of your principal. If your loan is $180,000, your closing cost can be anywhere from $5,400 to $10,800. To recoup this cost faster, make sure to obtain a low enough refinance rate. Financial experts recommend refinancing at least 1 to 2 percent lower than your original rate.
Adverse Market Refinance Fee
Because of the COVID-19 pandemic, the world economy fell into a recession in 2020. Fannie Mae and Freddie Mac lost approximately $6 billion to this crisis. As a result, they required mortgage lenders to charge borrowers a 50 basis point adverse market refinance fee. The rule officially took effect in December 1, 2020. Mortgages with balances below or equal to $125,00 are exempted from this fee, as well as FHA and VA refis. Take note of this extra charge before deciding to refinance your mortgage.
When people decide to refinance their 30-year mortgage into a shorter loan, they commonly choose a 15-year FRM. Shorter terms are also available in the market, such as 10-year and 20-year fixed-rate options. Likewise, you can choose a shorter loan from the get-go if you can afford it.
How do mortgage payments compare between different fixed terms? To give you an idea, the following example compares interest rates, monthly payments, and total interest costs over the life of a $220,000 loan. These payments presume a 20% down payment on the home and cover principal and interest on the loan. It does not include escrow costs such as mortgage insurance, homeowner’s insurance, and property taxes.
Loan Amount: $220,000
| Loan Term | 10-YR FRM | 15-YR FRM | 20-YR FRM | 30-YR FRM |
|---|---|---|---|---|
| Interest Rate (APR) | 2.871% | 2.877% | 3.343% | 3.545% |
| Monthly P&I Payment | $2,111.26 | $1,506.30 | $1,258.23 | $993.43 |
| Total Interest Costs | $33,351 | $51,134 | $81,976 | $137,636 |
The table shows that the shorter the loan term, the lower the interest rate. 30-year FRMs have the highest rate because lenders take on more duration risk for extended terms. Longer time means there’s greater possibility a borrower might default. Money also loses value over time due to inflation.
For monthly payments, the shorter the term, the higher the amount. In the above example, a 10-year FRM has a monthly payment of $2,111.26. Meanwhile, the longer you extend the term, the lower the monthly principal and interest payment. In the example, the 30-year FRM has a monthly payment of only $993.43. This is $1,117.83 cheaper than a 10-year term, making it more appealing to buyers.
However, savings are more evident when we look at total interest charges. The table shows shorter loan terms generate less interest. With a 10-year FRM, you only pay $33,351 on total interest costs. But with a 30-year FRM, your total interest charges amount to $137,636. If you take a 10-year FRM, you’ll save $104,285 on overall interest costs. Thus, taking a shorter term maximizes your interest savings.
Types of Home Loans with 15-Year Terms
Homebuyers can obtain 15-year fixed mortgages under the following conventional loans and government-backed mortgages:
Conventional Loans
Conventional mortgages are types of home loans that are not directly sponsored by the government. These are usually packaged into mortgage-backed securities that are backed by Fannie Mae and Freddie Mac, the two most prominent government-sponsored entities (GSE). Conventional mortgages are provided by private banks, mortgage companies, and credit unions.
To qualify, most conventional lenders prefer a credit score of 680 and above. Those with higher credit scores of 700 and up are offered more competitive rates. Conventional loans are commonly chosen by borrowers with stable incomes and good credit records. There are 2 types of conventional mortgages: conforming conventional loans and non-conforming conventional mortgages.
Conforming Conventional Mortgages
Home loans that conform to loan limits required by the Federal Housing Finance Agency (FHFA) are called conforming conventional loans. These limits are strictly followed by Fannie Mae and Freddie Mac to determine if loans qualify for financing. 2022 conforming loan limits for different types of housing are posted on the FHFA website.
In 2022, the conforming loan limit for single-family homes is $647,200 in US continental areas. If your mortgage falls within this amount, your loan qualifies as a conforming conventional mortgage. For high-cost areas, the limit is 150% of the baseline, which is $970,800.
Non-conforming Conventional Mortgages
In contrast, non-conforming conventional loans or jumbo loans exceed the assigned loan limits imposed by the FHFA. Thus, these mortgages cannot be guaranteed by Fannie Mae and Freddie Mac. Jumbo loans are used by high-income buyers to purchase expensive residential properties in high-cost locations. Because of the large loan amount, lenders require more thorough background checks and qualifications for borrowers. To be eligible for a jumbo loan, you must have a credit score of 700 and up with ample proof of income to afford payments.
Private Mortgage Insurance (PMI)
Conventional lenders require PMI when borrowers pay below 20% down payment on their mortgage. This is an extra charge that protects lenders in case borrowers fail to pay back their loan. PMI is typically included in monthly mortgage payments, which may cost anywhere between 0.25% to 2% of your loan per year. This fee is only required for a limited period and is removed once your loan’s loan-to-value ratio reaches 78%.
Government-backed Loans
Borrowers looking for affordable home financing can turn to government-sponsored mortgages. These loans are directly funded by the government, providing lower rates and fees compared to conventional loans. If you have low to moderate income and a low credit score, this option can help you. Borrows can choose from the following government-backed mortgages:
- FHA Loans backed by the Federal Housing Administrations
- VA Loans backed by the US Department of Veteran Affairs
- USDA Loans backed by the US Department of Agriculture
FHA loans allow borrowers to qualify with a minimum credit score of 500. And if your credit score is 580 and above, your down payment can be as low as 3.5% of the home’s price. But note that FHA loans require mortgage insurance premium (MIP), which is an extra fee that protects lenders in case you default on your mortgage. MIP is paid both as an upfront and annual amount. The upfront MIP fee is 1.75% of the loan, while the annual MIP fee is usually 0.85% of the loan. MIP is an added cost that is required for the entire mortgage.
On the other hand, VA loans and USDA loans offer 100% financing which means no down payment is required. However, for these loans, note that not making any down payment increases the required VA funding fee and USDA guarantee fee.
USDA loans charge mortgage insurance called the USDA guarantee fee. This also required for the entire loan. The upfront guarantee fee is 1% of the loan, while the annual guarantee fee is 0.35% of the loan. Meanwhile, VA loans don’t require mortgage insurance. Instead, they charge a VA funding fee to offset the cost on US taxpayers. This cost depends on VA funding fee rates which vary depending on how many times you’ve used your VA benefit.
Reasons to Choose a 15-Year Fixed-Rate Mortgage
Instead of 30-years, the prospect of paying your mortgage sooner is better. Three decades is an awfully long time, which means you might be paying for it into your senior years. If you want to avoid this, you can choose a shorter term. With a 15-year FRM, you can rest easy knowing your mortgage has been paid before retirement.
When you pay your mortgage earlier, it frees up a lot of your income. You can allocate more of your cash towards emergency savings and retirement funds. Others choose to set aside money for their child’s college education, or invest in profitable business ventures.
Government-backed loans with 15-year FRMs also come with more affordable fees and loan-level price adjustments. For instance, mortgage insurance premium (MIP) for FHA loans is also cheaper if you choose a 15-year fixed FHA loan.
Furthermore, compared to a 30-year FRM, you save tens and thousands on interest charges with a 15-year FRM. 15-year FRMs also come with lower rates by around 0.25% to 1% than 30-year FRMs. As of January 10, 2021, the average mortgage rate for a 30-year FRM is 2.65% APR, while the average interest rate for a 15-year FRM is 2.16% APR. If you’ve taken a 30-year FRM, you can refinance to a 15-year term after a couple of years. This allows you to secure a lower rate and pay your mortgage earlier.
Consider the Disadvantages
On the downside, expect your monthly payments to be higher with a 15-year FRM. This requires more money per month to pay off your loan in a shorter time. For this reason, 30-year fixed mortgages are more attractive to consumers, especially first-time buyers with limited funds. Homebuyers may also be discouraged to take a 15-year FRM because it means qualifying for a smaller loan amount.
For instance, depending on your credit background, you might qualify to purchase a $350,000 home with a 30-year FRM if you pay 20% down. But if you choose a 15-year FRM, you might only qualify for a $300,000 loan. And since the monthly payments are more expensive, you might have little room for other funds in your budget. But for those who can afford a 15-year term, it’s worth the interest savings and paying your loan early.
Since monthly payments are more expensive, it gives you less room for savings and other important expenses. This means while you’re focusing on paying your mortgage, you’ll build less savings for retirement and emergency funds. You also trade the opportunity to invest in profitable business ventures while you’re prioritizing mortgage payments.
The following chart summarizes the pros and cons of choosing a 15-year fixed-rate mortgage.
| Pros | Cons |
|---|---|
| Interest rate remains the same | More expensive monthly payments compared to a 30-year FRM |
| Keep the same monthly interest & principal payments | You can only qualify for a lower loan amount vs. 30-year FRMs that offer a larger loan amount |
| Interest rate is lower by 25%-1% than 30-year FRMs | Less room in your budget for savings and other expenses |
| Pay your mortgage sooner, build home equity faster | Less money in case of emergencies, like sudden hospitalization or unemployment |
| Affordable fees & loan level price adjustments for FHA, VA, and USDA loans | Less money going to retirement funds |
| 15-year FHA loans charge cheaper MIP than 30-year terms | Keeps you from investing in profitable ventures |
Comparing 15-Year FRM with a 30-Year FRM
To understand the difference between a 15-year FRM and a 30-year FRM, here’s an example. Suppose you bought a house at $350,000 and made a 20% down payment of $70,000. The table below compares the monthly payment and overall interest costs between a 15-year FRM and a 30-year FRM.
House Price: $350,000
Down Payment: $75,000
Loan Amount: $280,000
| Mortgage Details | 15-Year FRM | 30-Year FRM | Difference |
|---|---|---|---|
| Rate (APR) | 2.16% | 2.65% | 0.49% |
| Monthly interest & principal payment | $1,822.53 | $1,128.30 | $694.23 |
| Total Interest Costs | $48,054.90 | $126,187.50 | $78,132.60 |
*This calculation did not include escrow costs.
Based on the example, the 15-year FRM has a lower APR by 0.49% than the 30-year FRM. It comes with a monthly interest and principal payment of $1,128.30. This is higher by $694.23 than the 30-year FRM. In this scenario, consider if you can afford to add over $600 to your monthly payments. For many consumers, especially first-time homebuyers, this expensive cost might be too tight for their monthly budget.
On the other hand, if you can afford to take a 15-year FRM, you’ll save a considerable amount on interest charges. The 30-year FRM generates total interest worth $126,187.50, while the 15-year FRM only generates a total interest cost of $48,054.90. If you take the 15-year FRM, you’ll save $78,132.60 over the life of the loan.
Making Extra Payments on a 30-Year FRM
If you cannot afford a shorter term, don’t worry. There’s a way to reduce your term without choosing a 15-year fixed-rate loan or refinancing. This can be done by making extra mortgage payments toward your principal. Additional payments of $50 to $100 a month have the most impact during the early years of a loan. The extra payments help reduce the principal faster. Though it won’t cut 15-years off your term, it can help pay your loan early by a couple of years.
But Be Careful!
Lenders discourage early mortgage repayment by charging prepayment penalty. So before making extra payments, talk to your lender first. This extra charge forfeits any savings you make from extra payments. Prepayment penalty usually takes effect for the first 3 years of a mortgage. Some lenders may allow you the prepay up to 20% of your principal during the penalty period before the fee is prompted. To be safe, you can wait for the penalty period to lapse before making additional payments.
In Summary
In the U.S. housing market, 15-year fixed mortgages are the second most popular loan product next to 30-year fixed-rate loans. It’s used as a loan purchasing tool and is also a popular refinancing product for borrowers.
While most homebuyers choose a 30-year fixed mortgage, 15-year fixed mortgages allow you to pay for your loan in half the time. Besides gaining home equity faster, it also generates lower interest charges over the life of the loan.
However, expect 15-year fixed mortgages to have expensive monthly payments. You will also qualify for a smaller loan amount if you get a shorter term compared to a 30-year fixed-rate mortgage. Thus, higher loan amount and more affordable monthly payments make 30-year fixed mortgages more appealing to consumers.
But don’t be discouraged to take 15-year fixed mortgages. Despite the higher monthly payment, it generates cheaper interest charges over the life of the loan. This means you can save tens and thousands of dollars on total interest costs compared to a 30-year fixed mortgages. Shorter loan terms also come with lower interest rates, which further maximize your interest savings. For this reason, homeowners eventually refinance to a 15-year fixed mortgage when market rates significantly decrease.
In summary, taking a 15-year fixed mortgage is a viable financial strategy if you want to pay your loan early and decrease interest charges. Consider taking a shorter term to boost your mortgage savings.
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