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15 Year Fixed Rate Mortgage

It’s the new trend!

Purchasing or refinancing with a 15 year fixed rate mortgage is the new trend, especially with the low interest rates that have held up for some years now. Many homeowners are refinancing from a 30 year fixed mortgage to a 15 year fixed mortgage because of the many benefits it offers, and homebuyers are digging in to see how they may be able to save on interest over the life of the loan.

Keep in mind, “fixed rate” means that the monthly mortgage payment remains the same throughout the life of the loan.

Paying less interest = more savings

In today’s market, the interest rate difference between a 15 year fixed rate mortgage and a 30 year fixed rate mortgage may not seem like much, however many are considering a key fact: a 15 year fixed rate mortgage accrues less interest than the 30 year fixed mortgage. This happens simply because interest has less time to accumulate on a 15 year mortgage.

The result could be some major savings over the life of the loan.

Let’s take for example, a 30 year mortgage with an interest rate of 4.00%, and a 15 year mortgage with an interest rate of 3.30%.  On a $250,000 loan amount, you’ll save about $112,000 in interest by going with the 15 year fixed. There is something to be said about inflation, which is around 3% on average. So taking inflation into consideration, you’ll pay about $82,000 less in interest by choosing the 15 year mortgage.

Higher monthly payments = the good, the bad, and the ugly

Sounds like some smart savings, right? Keep in mind, since you’re paying off your mortgage in half the time as compared to a 30 year fixed, your monthly mortgage payment will be higher.

The good

Paying off your loan in half the time means you’re building equity in your home faster, and you’re on your way to owning your home free and clear a lot sooner. You’re also putting a smaller percentage toward interest, resulting in significant overall savings.

The bad

Not everyone can stomach the higher monthly payment. In the above scenario, the monthly payment on the 30 year fixed is $1,193.54, while the monthly payment on the 15 year fixed is $1,762.75.

The (not so) ugly

There’s nothing really ugly about it, it’s all about making an informed decision and working with the right mortgage lender to help you make the call.

If you’re thinking about it and would like to crunch some real numbers, give us a call and we’ll to provide you the information you need to make the right decision.