15-Year Fixed Mortgages Are Growing in Popularity
New data shows that nearly 30 percent of refinance loans taken over the past ten years have been for 15-year, fixed-rate mortgages. This represents a stunning five-fold increase from the previous decade. For home owners who are able to swing the higher monthly payments, there are big savings to be had over 30-year, fixed-rate mortgages.
Firstly, 15-year mortgages almost always come with drastically lower interest rates than longer-term loans. This means lesser interest payments to the bank each month, and interest savings in the thousands over the life of the loan.
Secondly, and on a related note, a shorter term means each monthly payment is weighted more heavily toward principal than toward interest. This means more equity faster, as well as a quicker pay-off.
Consider this example based on 2016 mortgage rates:
- 15-year fixed-rate = first mortgage payment is 66 percent principal and 34 percent interest
- 30-year fixed rate = first mortgage payment is 35 percent principal and 65 percent interest
For homeowners and new buyers with the financial wherewithal to maintain a higher monthly payment, 15-year fixed mortgages allow for historically low interest rates and the ability to aggressively pay off the principal owned on a home.
However, these loans aren’t for everyone. Consumers who are stretching their monthly budget just to be able to afford a home will find conventional 30-year loan terms much more comfortable. Loan officers can provide up-to-date interest rates and help those looking to buy or refinance determine which loan product is the best fit.
Image via Flickr/lotinamarcus