15 Year Fixed Rate Mortgages: Secure Lower Interest Rates | Loanbiz
Like a 30 year fixed rate mortgage, a 15 year FRM carries an unchanging interest rate and monthly payment throughout the life of the loan (this time, 180 months). Rates for 15 year mortgages are approximately half a percent lower than rates for 30 year programs. Typically, borrowers who choose a 15 year fixed rate program over a 30 year fixed rate program can make a higher payment and want that lower interest rate. The shorter term might also be a fundamental part of a retirement plan, eliminating the house payment before leaving the workforce.
Advantages: The 15 year fixed rate mortgage offers many advantages, among them a lower interest rate. Equity accrues much faster than it does with a 30 year loan, greatly reducing the chance that the borrower will ever be "upside down" on the home, owing more than the property is worth. The cushion of equity acts as a financial safety net in case of unexpected financial needs. The 15 year fixed rate loan, like its 30 year counterpart, offers safety in the event of interest rate increases. Budgeting is easier and those with fixed incomes needn't worry about their loan payment changing and becoming unaffordable.
Disadvantages: Despite the lower rate, 15 year fixed rate mortgage payments are considerably higher than those of loans amortized over 30 years. A homeowner with a 30 year loan can choose to pay more when he or she can afford it. A borrower with a 15 year loan doesn't have that choice--if money gets tight the higher mortgage payment will still be required. Also like a 30 year FRM, the interest rate doesn't drop when rates go down. Borrowers with FRMs have to refinance to take advantage of drops in interest rates.
The 15 year FRM is extremely suitable for borrowers who don't want to be at the mercy of the financial markets, especially homeowners with fixed incomes. Those who plan to keep their homes indefinitely and can afford the higher payment of a 15 year mortgage may find that this loan meshes best with their financial and lifestyle plans.
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