When looking to buy a home, you will find that a lot of people tend to go for a 15-year fixed rate mortgage as opposed to a lot of the other options. This type of loan is paid back much quicker which means that more lenders prefer it. As a result, you get a fixed payment and lower interest rates. Of course, you’ll be paying back your loan in half the time of usual loans so your monthly payments will be higher, but you do save some money when it comes to the interest rate as it is typically 0.50% to 0.75% lower compared to a 30-year loan.

As you already figured out, there are both benefits and some negatives to choosing a 15-year fixed rate mortgage and the following information will break those down into detail for you.


Low Interest Rate

As was briefly discussed above, one of the biggest benefits to a 15-year fixed rate mortgage is the fact that you are going to get an interest rate that can be as much as 0.75% lower than if you were to go with a loan of 30 years. When you combine the lower interest rate with the fact that you will pay off your loan in half the time, you will save thousands of dollars every year in interest payments alone. To put it into perspective for you, if you choose a 15-year over a 30-year loan on a $200,000 loan, you will save a crazy $147,000 over the life of the loan if you select the 15-year.

Build Equity Quickly

Another benefit when it comes to selecting a 15-year loan over any other option is the fact that you will earn equity on your home a lot faster than if you would have chosen a 30 year for example. To put it into a real-world scenario for you, consider this. If you have a $200,000 loan at 6% for 30 years and 5.25% for 15 years, then after just five years of owning your home, you will have $35,000 more equity compared to someone that would have selected the 30-year loan. Plus, after 15 years, your home will be paid off and the 30-year would still have a principal balance of $144,000 left on the home.

Fixed Payment

The last benefit you will find when it comes to a 15-year fixed rate loan is the fact that over the entire life of your home, you will have a fixed payment each month. This can be a big benefit for the borrower because it ensures that you will never have to worry about adjusting the payment each month and it will always be the same, affordable payment you are accustomed to paying.

Hidden Costs

While you got to see all of the benefits outlined in the points above, it is important to understand that there are some hidden costs thrown in by the lenders that could cost you a lot of money if you are unaware of them. The following are some of the most important hidden costs you need to remember in case they come up.


One of the most popular options that you will see is a hidden cost of mortgage points. Typically, lenders will offer very low interest rates to their borrowers so they need to make sure they can make the loan more profitable by adding points at either closing or lumped into the monthly payment. The points usually will cost about 1% of the total loan balance you have.

Balloon Payments

This is another type of hidden cost that is typically thrown into the agreement without you noticing. A lender will add in something that says the borrower needs to pay off the entire outstanding balance at a certain time. If it cannot be paid or refinanced, then the lender could throw the loan into default or even foreclose on the home if they wanted to.

Pre-Payment Penalties

This is a rare hidden cost but it still comes up from time to time so it is important to keep in mind. Prepayment penalties, as the name would suggest, are penalties that prevent the buyer from paying off their loan early. If you decide you want to pay more towards your house, it will cost you in the long run. A lot of them are gone after the first five years of your loan, but it could still cost nearly 2% if you decide to use it and you are hit with a penalty.

As you’ve been able to notice, there are a lot of benefits when it comes to choosing a 15-year fixed rate mortgage as opposed to a 30-year mortgage. While the payments will be more each month, there are plenty of benefits to outweigh the negatives and it will save you thousands of dollars in the long run.

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