Fixed-rate loans are the most popular type of home mortgage in the country, with the majority of homeowners opting for a 30-year fixed mortgage. However, 15-year fixed mortgages offer a lot of benefits for the right type of borrower. To help you decide which one is right for you, here are the basic differences between the two loan types.
Homeowners can expect a lower interest rate for a 15-year fixed mortgage than for a 30-year loan. The lower rate for 15-year mortgages reflects the lender's reduced risk and costs due to the loan's shorter term.
Even though the interest rates for 15-year fixed mortgages are lower than for their 30-year counterparts, the monthly payments will be significantly higher due to the loan's shorter term. For example, take a hypothetical $300,000 loan with a 4 percent interest rate for 30 years, or 3.25 percent for 15 years. The monthly payment on the 30-year mortgage would be $1,432, almost 70 percent less than the 15-year loan's monthly payment of $2,108.
The combination of the lower interest rate and the faster amortization--or payment of the principal balance--on a 15-year fixed mortgage means that the overall interest paid can be significantly lower than with a 30-year loan. On our hypothetical $300,000 loan, for example, the borrower would pay $215,609 total in interest by the end of their 30-year loan as compared to only $79,441 in interest paid on the 15-year loan.
If you have any questions about your mortgage options or would like to find out which type of fixed mortgage is right for you, contact Midland Mortgage Corporation today to speak with a home mortgage expert.