Learning About the 15-Year Mortgage Term

At Mortgage Investors Group, we’re a mortgage company dedicated to getting our clients the absolute best possible current rate. We have numerous loan programs available, with varying terms and down payment options to fit your financial needs.

While the most popular mortgage option is the 30-year term, especially among first-time buyers, the 15-year mortgage option also presents several potential benefits for people in the right position to get one. Let’s go over some basics of this loan, and whether it might be right for you.

15-Year Mortgage Basics

A 15-year loan term generally comes with a fixed interest rate, meaning that the rate you receive when you first start the loan will remain in place for the entirety of the term regardless of market fluctuations. This protects you from rising rates, but can also be more costly in interest than certain adjustable-rate loans.

In most cases, you’ll mostly pay interest during the first few years of a 15-year mortgage. As you get into the later years, though, the balance changes and you’ll be paying more and more of the loan principal.

Pros and Cons

The primary benefit of a 15-year mortgage is that you pay far less interest over the full term. This is because you make fewer total payments and keep the debt for a shorter period of time. On the flip side, the primary disadvantage is higher monthly payments – you’re paying down the same amount over a much shorter period of time, and that gap has to be made up somewhere.

Comparison Example

Let’s do a simple example based on late 2017 mortgage rates to show how a 15-year mortgage can change your finances. Let’s assume two borrowers are taking out loans for $200,000 apiece, with Borrower A using a 30-year fixed rate mortgage and Borrower B using a 15-year fixed mortgage. We’ll also assume that both stay in their homes for the full loan term. Here’s how monthly payments and future costs would shake out, assuming standard interest rates:

• Borrower A, who used a 30-year mortgage, will have a monthly payment of $947, with a total interest payment of $140,839 over 30 years. The total cost including both principal and interest, then, will be $340,839.
• Borrower B, who used a 15-year option, will have a higher monthly payment of $1,399. But on the flip side, they will pay just $51,738 in interest over the 15 years, and therefore will spend a total of $251,738 – nearly $90,000 less than the person who uses the 30-year option.

For more on which loan term is right for you, or to speak to a mortgage lender who can point you in the right direction, contact Mortgage Investors Group today.