Five Advantages of Choosing a 15-Year Fixed Rate Mortgage Over a 30-Year Mortgage

With all of the options available to you as a home buyer, choosing the right type of mortgage may seem overwhelming. You can choose from fixed rate mortgages, adjustable rate mortgages, mortgages in which you only pay interest for several years, and several other options. So how do you decide which one to choose? If you are trying to decide, here are some advantages of choosing a 15-year fixed rate mortgage to help you with your decision.

1. A 15-year fixed rate mortgage means paying less interest over the course of the loan.

When you pay your monthly mortgage payment, there is always going to be a significant amount of your money that goes to pay the interest. The longer your mortgage term is, the more interest you are going to pay over the life of the loan. Assuming a straightline amortization schedule and the same loan amount, you will pay less than half of the overall interest over the life of a 15-year fixed rate mortgage than on a 30-year fixed rate mortgage.

2. A 15-year fixed rate mortgage means getting out of debt faster.

Many financial experts suggest doing a 15-year fixed rate mortgage because it will help you get out of debt faster. Experts like Dave Ramsey suggest that you put at least 20 percent down on the home and he also says that your mortgage payment should be no more than 25 percent of your take home pay each month. While the monthly mortgage payments on a 15-year fixed rate loan would be a little higher than on a 30-year mortgage loan, that increase is due to faster amortization (i.e., faster pay down of the loan amount) and you will be out from underneath your mortgage debt in half the time which can be liberating, both financially and psychologically.

3. Rates on a 15 Year Fixed Rate Mortgage are ordinarily Lower than on a 30 Year Fixed Rate Mortgage

While rates on 30 year fixed rate mortgages are at historically low levels, in most parts of the country rates of 15 year fixed rate mortgages are as much as 50 basis points lower.

4. You Are Unlikely to Live in Your Home More than 15 Years

Many home buyers believe that it makes sense to lock in to today’s historically low rates for the longest period possible and therefore believe that they should choose the longest term possible. Such a strategy ignores the reality that very few home buyers will live in their home more than 15 years. When you sell your home, you will be paying off your mortgage.

5. A 15-year fixed rate mortgage loan instills discipline.

You might be asking yourself, “Why can’t I just get a 30-year fixed rate mortgage loan and pay it off in 15 years?” That might sound like a good idea, but the fact is that more than 97 percent of home buyers lack the discipline that it takes to do that and they never make any extra payments after the first few months of their mortgage. When something comes up during the month, it’s very easy to simply forego the extra payment for the mortgage and put the money towards something else. But signing up for a 15-year fixed rate mortgage forces you to discipline yourself and budget your money accordingly so you actually pay off your house in 15 years instead of 30. Besides, even if you sign up for a 30-year fixed rate mortgage and you pay it off in 15 years, you might be paying a higher rate than if you had just signed up for the 15-year fixed rate mortgage (see point 3 above).

A 15-year fixed rate mortgage has both financial and psychological benefits over a 30-year fixed rate mortgage. If it is a possibility for your budget and your financial situation, it may be your best option. Crunch some numbers and work with a qualified financial consultant to make sure a 15-year fixed rate mortgage is ideal for you.

Have a look at 15 year fixed rate mortgage rates where you live here.