The 15-Year Fixed Mortgage
How a 15-year mortgage stacks up against a 30-year mortgage
For decades, a 30-year fixed-rate mortgage was the standard term for most homebuyers. Now, in a period of new thriftiness, demographic changes and an aversion to taking on more debt than is necessary, the 15-year fixed mortgage is gaining popularity.
Who chooses a 15-year mortgage?
Broadly speaking, there are three types of buyers that tend to choose a 15-year mortgage:
- Younger, high-income buyers who are purchasing less house than they could probably otherwise afford. While they might easily qualify for a 30-year mortgage on a more expensive home, they instead choose to take out a 15-year fixed mortgage and save thousands on interest by paying off their loan faster.
- Middle-aged buyers who are eager to pay off their mortgages by the time they retire, perhaps so that they will no longer have house payments after they go on a fixed income.
- Buyers who refinance their mortgages to pay off their home faster.
The advantages of 15-year mortgage rates
There are several advantages to financing a mortgage over a shorter time period. They include:
- Lower interest rates. 15-year fixed rates are generally slightly lower than rates on a 30-year mortgage.
- Less interest paid. Over the life of a loan, you'll typically pay tens of thousands of dollars less in interest payments on a 15-year fixed mortgage than you would on a 30-year loan.
Comparing the 15-year mortgage to the 30-year mortgage
The difference between a 30-year mortgage and a 15-year mortgage can best be seen by looking at an example. Note: the rates below are used only as a demonstration. We'll look at a $150,000 mortgage loaned at 5% for 15 years or a slightly higher 5.2% for 30 years. (Longer-term mortgages typically carry a slightly higher rate.)
- Payments: Calculated monthly payments on the 15-year loan would be $1,186, as compared with $824 on a 30-year loan.
- Interest: In the first five years of the loans, there isn't a great difference in the amount of interest you will pay. However, there is a significant difference in the cumulative amount of interest you would end up paying over the life of each loan. In this example, as the buyer, you would be paying approximately $146,000 in interest on the 30-year mortgage and approximately $63,000 on the 15-year mortgage.
- Tax deduction: Your mortgage tax deduction will be lower on the 15-year mortgage than it would be on the 30-year mortgage. But, that is more than offset by the significant savings on interest.
Apply for a 15-year mortgage with Citizens Bank
Whether you're shopping for 15-year fixed rates or other fixed rate mortgage options, Citizens Bank has home loans designed to fit your particular needs. You can learn more about our mortgage rates and apply for a mortgage online today. Alternatively, you can contact a Citizens Bank home loan advisor at 1-888-514-2300 for more information.