The Forgotten Benefits of a 15-Year Mortgage
When buying a home, only a few buyers seek a 15-year old mortgage and the number is decreasing by the day. The reason is simple -- it’s a relatively higher monthly payment compared to its 20 and 30 year brethren. According to the Mortgage Bankers Association, during 2015, only 5 percent of home buyers and 20 percent of refinancers opted for a 15-year mortgage. Though many buyers may not prefer a 15-year mortgage, the reality is they can save a lot of money in the long run. Below are three (3) solid reasons why it makes more sense to opt for a 15-year mortgage.
1. Lower Interest Rates
As a 15-year mortgage is a shorter-term loan, it is less risky for the lenders and the chances of a borrower defaulting on a loan is correlated to the duration of the payback period. Therefore, most lenders offer comparatively lower interest rates on 15-year mortgage programs. The interest rate of a 15-year mortgage can be anywhere between quarter to a whole point less than a 30-year mortgage.
2. Saves Money on Interest
When you choose a 15-year mortgage program to finance your home, not only are you paying a lower interest rate, but more of your payment is going towards principal (which goes to actually paying off the loan) versus more going to paying interest (which goes to paying the lender). As you get closer and closer to paying off the mortgage the amount of interest that you pay becomes less and less, as the loan is amortized. This saving in interest, alone, can be upwards of 10’s of thousands of dollars, in most cases. Take a look at the comparison by using our 15 vs 30 Year Mortgage Calculator.
3. Less Fees
Another advantage of opting for a 15-year mortgage loan is that you need to pay less fees. The government sponsored enterprises (GSE’s) charge lower fees for loan level price adjustments on 15-year mortgages than they do for 30-year mortgages. These fees apply to all borrowers who have a lower credit score or make a small down payment, or both. Additionally, the Federal Housing Administration (FHA) also charges lower mortgage insurance premiums to borrowers who opt for a 15-year mortgage program. The borrower pays these costs as either a part of the interest rates or as upfront fees.
Summing It Up
Based on the above, borrowers who can afford a higher monthly payment may want to consider opting for a 15 year mortgage over a 30 year mortgage. If you need more information about mortgage options, get in touch with one of our mortgage experts who possess an in-depth understanding of mortgage financing and can help you with more than a few borrower-friendly mortgage options, including VA, FHA, USDA rural development loan, and other home buyer programs.