However, the total interest on the 15-year loan would only be $162,955.13 compared to $436,781.99 on a 30-year loan. Similarly, the total payments would amount to $482,955.13 compared to $756,781.99 on a 30-year loan. In other words, you’d save $273,826.86 in the long run by opting for a 15-year mortgage. The Home Mortgage Disclosure Act (HMDA) data about our residential mortgage lending are available for review. The data shows geographic distribution of loans and applications; ethnicity, race, sex, age, and income of applicants and borrowers; and information about loan approvals and denials. These data are available online at the consumer Financial Protection Bureau’s website (/hmda).
Check out today’s mortgage rates.
There is a higher monthly payment than a 20- or 30-year loan due to a shorter term. But in reality, it’s much harder to qualify for a 15-year loan because of the higher monthly payments. Once a homebuyer accrues 20% equity in their home, they can petition to have this monthly payment removed from their loan, often by ordering an appraisal to confirm the value of their home. Otherwise, mortgage insurance is automatically removed once you accrue 22% equity in your home. “If you don’t expect to be in your home for a long time and believe that rates are going to decline over the next couple of years, then the ARM is a good mortgage product to start with,” Cohn says. “When rates bottom out, refinancing to the security of a fixed rate makes sense if you think you will be in the home long term.”
Online & mobile banking
But with a 15-year mortgage, you’re obligated to make the higher monthly payments or risk your loan going delinquent.
Many people choose 30-year fixed-rate mortgages because of the smaller payments, which grant greater financial flexibility.
The table below provides a quick summary of how the differences between these two loan terms will affect you as a borrower.
Never opt for higher monthly mortgage payments at the expense of a retirement plan.
As the name implies, this type of mortgage has a fixed rate, which keeps the payment and interest rate the same for as long as you hold the mortgage.
In other words, the 15-year monthly payment is 55% higher than the 30-year for the same amount at the same rate.
Further, the average homeownership tenure was only about 7 years in 2003. Today, post-pandemic, the average homeownership tenure is closer to 10.5 years. Enter your contact information below and a loan officer will reach out to you to assist you with the loan process and answer any questions.
When to consider a 15-year refinance
It’s important to keep in mind that your tax savings will likely be low if you’ve got a 15-year fixed-rate mortgage. Since you’ll be paying less interest than someone with a 30-year fixed mortgage loan, you’ll have less interest to deduct. But in the long run you are saving money by paying less interest. While it’s possible to qualify for a mortgage with a low credit score (even if it’s below 620), it’ll be more challenging and could result in a high interest rate. If this is your situation, your best bet might be to go for an FHA loan or a USDA loan. The former is designed for first-time homebuyers, while the latter is built for those buying a home in a rural area.
Forced Savings
Whatever it is, there’s always a reason to spend that money somewhere else. But doing that is really no different than choosing a 15-year mortgage in the first place. Besides that, choosing to make those extra payments would be up to you. Not to mention that, as we talked about earlier, the interest rate for a 30-year mortgage is higher than a 15-year mortgage. A shocking number of people ask just one lender or broker for a quote when they buy a home or refinance. The best way to get a great deal is to request quotes from multiple lenders.
Treasury & payments
On paper, it’s no harder to qualify for a 15-year mortgage loan than a 30-year one. Guidelines vary by loan type (conventional, FHA, or VA), but within each program, requirements for a 15- and 30-year loan are generally the same. Better yet, the total amount of interest you pay will be much, much lower because you’re borrowing the same sum for half the period. A loanDepot loan consultant can advise you on whether this kind of refinance can make financial sense.
What Are the Differences Between 15-Year and 30-Year Mortgages?
Paying off your mortgage by the time you retire is like a satisfying accomplishment and gift to yourself. In this scenario, getting a 15 year implies maxing out retirement accounts automatically. Would maxing out both you and your spouse’s 401k and Roth IRA and HSA (assuming your both healthy) be a better investment than saving many thousands of dollars in mortgage interest? This is actually a simple math problem and many financial advisors have come to a consensus. I’d only add that Dave Ramsey sees this as a behavior problem, and therefore he strongly prefers a 15 year mortgage.
How a 15-year mortgage stacks up against a 30-year mortgage
With this option, the total amount you pay over the life of the loan will usually be higher. This 15- vs. 30-year mortgage calculator can help you determine which option is right for you. If you already have a 30-year fixed-rate mortgage and are interested in refinancing to a 15-year mortgage, there are a couple key points to keep in mind.
Refinancing into a 15-year mortgage
30 year and choice of what to do with the difference in payment with a 15 year is better. Unfortunately, as of today, the 15-year fixed rate mortgage is now the same or higher than the average 5/1 ARM. That said, well-qualified borrowers are still getting much lower rates than average. But even still, taking out a 30-year fixed rate mortgage makes no sense if you plan to sell your home after 10.5 years. Strategically, you want to match your fixed rate with your homeownership tenure to save the most amount of money.
What were the lowest 15-year mortgage rates?
For buyers looking to maximize their purchasing power, we often recommend the 30-year term. Extending your loan term from 15 to 30 years can lower your monthly payment by thousands of dollars which can translate to hundreds of thousands of dollars in purchasing power. Yes, 15-year mortgages come with larger monthly payments, which can potentially put a strain on borrowers’ budgets and limit how much they can afford to borrow. The main benefits of getting a 15-year mortgage are a lower interest rate, less interest paid overall, and building equity faster.
Eligible loan products are Conventional Fixed, Conventional ARM, FHA Fixed and VA Fixed.
With a fixed rate mortgage, your monthly mortgage payments remain the same throughout the term, which makes budgeting easier as you know exactly how much you will be paying each month.
Lenders consider a shorter loan term less risky, which is why they’re willing to offer lower mortgage rates.
By requiring this additional payment, lenders allow buyers to purchase homes with far less than the 20% down that was needed in the early days of homebuying.
Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. Some products may not be available in all states and restrictions may apply.This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. The best way to determine whether a 15-year fixed-rate mortgage makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.
How to compare current 15-year mortgage rates
Taken together, you can save a staggering amount of money simply by going with a 15-year fixed instead of the more commonplace 30-year fixed.
Some borrowers opt for the 15-year vs. a 30-year mortgage (a more conventional choice) since it can save them a significant amount of money in the long term.
Whether you should wait to buy a house depends on the market and your financial situation.
A shocking number of people ask just one lender or broker for a quote when they buy a home or refinance.
Let’s take a closer look at the 15-year fixed-rate mortgage, how it works, and why it’s one of your best options when it comes to buying a house.
If you plan to stay in your home for a long time, you might prefer a 15-year mortgage since you’ll pay off your mortgage sooner and benefit from owning your home free and clear. You’ll also build equity more quickly, which you can then access using a home equity loan, HELOC, or cash-out refinance. Some people want to pay off a mortgage before their children go to college. That’s fine, since it will take a large expense out of your budget at a time you’ll be taking on another big expense. But keep in mind that there are alternative ways to save for college, including tax-free 529 savings plans. The 15-year loan payment would be $2,108 exclusive of a required escrow payment for taxes and insurance.
Is a Mortgage Pre-Approval Letter Necessary to Make an Offer on a House?
A general rule of thumb is to look for a mortgage with a monthly payment of no more than a third of your gross monthly income. With rising interest rates, many home buyers seek ways to lower their borrowing costs. It’s a loan with a repayment period of 15 instead of 30 years and a mortgage rate that tends to be lower than longer-term mortgage rates.
Year Fixed Rate Mortgages
Many people don’t realize the financial advantages of choosing a fixed 15 year mortgage. In this kind of mortgage, the borrower not only pays less interest over time, but typically obtains a lower interest rate than on a traditional 30 year mortgage. Mortgage insurance is a mandatory addition to more lenient financing options that acts as an added protection for your lender in the event of a default. By requiring this additional payment, lenders allow buyers to purchase homes with far less than the 20% down that was needed in the early days of homebuying. A 15-year fixed-rate loan is intended for anyone wishing to take advantage of the lowest rates while also enjoying the perks of a fixed monthly payment.
Why Choose a 15-Year Mortgage Over a 30-Year Mortgage?
By opting in for a shorter mortgage term, you will pay down substantially more principal in fewer years, thus building equity at a much faster rate. Private mortgage insurance is required for all conventional loans with a down payment of less than 20%. Borrowers can opt to pay this monthly (most popular), in a lump sum at closing, or finance the lump sum into the loan. The cost for PMI varies depending on credit score, down payment, and loan term.
Lower interest rates
Since crossing above the 6.4 percent mark in April this year, 15-year mortgage rates have trended downward. While it remains to be seen whether they’ll continue falling into 2025, the consensus for now is that rates appear to be stable, even with Federal Reserve rate cuts. This table does not include all companies or all available products. After selecting your top options, connect with lenders online or on the phone.
Low current interest rates for 15 year mortgage rates – averaging 3.28% to 3.44% in January 2020 – save money, and buyers interested in paying down principal quickly often can do it without breaking their bank accounts. Monthly payments for a 15-year mortgage are a lot higher than 30-year mortgages, and if interest rates were higher, the monthly payment on the shorter term could be painful. But historically low interest rates have made 15-year mortgages increasingly popular.
This link takes you to an external website or app, which may have different privacy and security policies than U.S. We don’t own or control the products, services or content found there. The main advantages of a 15-year fixed mortgage are outlined below. At Bankrate we strive to help you make smarter financial decisions.
You spend some time reviewing your financial situation and deciding whether a shorter term is the way to go. Maybe you’re confident in your job stability and the prospect of an upcoming promotion or two in the next few years. Additionally, you have little to no debt and have no problem cutting back if things get too tight with your budget. The advantage of a shorter-term loan is that you’ll spend much less on interest once you pay off your home. It could even be hundreds of thousands of dollars, depending on where you live and your loan amount. That’s a lot of money you get to keep instead of giving to a bank.
One way to get the best of both worlds is to start out with a 30-year fixed mortgage then refinance into a 15-year loan if makes sense to do so. The 30-year fixed mortgage folks probably weren’t thrilled either, but at least they could cut their losses or continue to make smaller payments as they assessed the rather dismal situation. Oh, and the 15-year fixed borrower would save nearly $250,000 over the life of the loan thanks to a much lower interest expense. Because principal paydown takes such a long time on a 30-year loan, you might not have enough equity to sell if you only hold for a few years. Personal finance typically evolves from a lower income in your 20s to higher earnings later in your career. In your 20s, saving can seem impossible due to responsibilities like marriage, children or student loans.
If saving is too difficult with a 15-year mortgage, consider taking a 30-year mortgage and paying more than the required monthly payment when you can. Since monthly payments on a 15-year mortgage will be higher, you won’t have as much wiggle room and you might not be able to save as much. However, after 15 years you won’t have any mortgage payments, freeing up capital to invest and spend freely. With a longer term of 30-years, you spend a long time paying down mortgage interest before you make a meaningful dent in your loan principal. With a shorter-term loan, you’ll start to pay down the loan balance and build equity a lot faster.
We took out a 15 year mortgage due to lower interest rates and to force ourselves to have our home paid for by our target retirement dates. There’s a a lot of psychological security in having the roof over your head paid for despite the ability to instead invest the money in the market. Look at Q and the rate differential between 15 year and 30 year. At that time, it would be real hard to justify going with the 30 year and not biting the bullet with higher monthly payments of the 15 year. I’m a big fan of Sam, but this is one area where he and I definitely disagree.
Therefore, I would have probably waited at least another year and lost out on a $46,400 paper gain. From 2003 – 2004, the San Francisco real estate market went up about 8%. A higher monthly payment for a 15-year mortgage requires higher income and higher cash reserves. Therefore, your emergency fund or cash reserves will have to be higher to cover your higher monthly burn rate. Of course, someone who makes $152,000 could still pay $6,905 a month in mortgage payments for a 15-year mortgage.
One major advantage of a 15-year mortgage is its lower interest rate. Compared to a 30-year loan, a 15-year mortgage can carry an interest rate that’s about three-quarters of a percentage point lower. In fact, 15-year loans are some of the cheapest money you’ll find. A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. When determining how much mortgage payment you can afford, consider the 28/36 rule. This guideline suggests spending no more than 28% of your gross monthly income on home-related costs and no more than 36% on total debts, including mortgage, credit cards and other loans.
Ultimately, 15-year mortgages can be a great way to build equity faster and lower the long-term cost of borrowing. But home buyers must also consider the higher monthly payments and whether they can afford them. They can help you choose the loan type that best suits your goals and financial situation. If you can comfortably afford the monthly payments on a 15-year fixed-rate mortgage, it’s definitely a good idea. You stand to save tens of thousands of dollars — maybe even hundreds of thousands, with a shorter loan term.But no type of mortgage is a good idea if you cannot comfortably make the monthly payments. Remember, the loan is secured by your home, so falling behind on payments could mean losing your home in a foreclosure.
Or the 30-year loan might let the borrower buy a bigger home or take on a larger mortgage. For example, a 30-year mortgage for a $300,000 home would cost $1,432 per month. The 30-year loan brings the payment under the $1,500 maximum and allows the borrower to take on a larger loan—presumably getting a bigger home or a better location. In this case, our borrower would still be making a higher monthly payment, but not as high as the higher-rate scenario. Our borrower would also save more than $115,000 in total interest. The offers that appear on this site are from companies that compensate us.
With a shorter loan period, buyers pay less in overall interest over the life of the loan compared to the 30-year fixed-rate option. However, savvy clients who invest the savings from their 30-year loans back into the market earn a conservative 5% annually, giving them a higher net worth than those who pursue the 15-year option. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts.
Current 15-Year Mortgage Rates
However, the total interest on the 15-year loan would only be $162,955.13 compared to $436,781.99 on a 30-year loan. Similarly, the total payments would amount to $482,955.13 compared to $756,781.99 on a 30-year loan. In other words, you’d save $273,826.86 in the long run by opting for a 15-year mortgage. The Home Mortgage Disclosure Act (HMDA) data about our residential mortgage lending are available for review. The data shows geographic distribution of loans and applications; ethnicity, race, sex, age, and income of applicants and borrowers; and information about loan approvals and denials. These data are available online at the consumer Financial Protection Bureau’s website (/hmda).
Check out today’s mortgage rates.
There is a higher monthly payment than a 20- or 30-year loan due to a shorter term. But in reality, it’s much harder to qualify for a 15-year loan because of the higher monthly payments. Once a homebuyer accrues 20% equity in their home, they can petition to have this monthly payment removed from their loan, often by ordering an appraisal to confirm the value of their home. Otherwise, mortgage insurance is automatically removed once you accrue 22% equity in your home. “If you don’t expect to be in your home for a long time and believe that rates are going to decline over the next couple of years, then the ARM is a good mortgage product to start with,” Cohn says. “When rates bottom out, refinancing to the security of a fixed rate makes sense if you think you will be in the home long term.”
Online & mobile banking
Further, the average homeownership tenure was only about 7 years in 2003. Today, post-pandemic, the average homeownership tenure is closer to 10.5 years. Enter your contact information below and a loan officer will reach out to you to assist you with the loan process and answer any questions.
When to consider a 15-year refinance
It’s important to keep in mind that your tax savings will likely be low if you’ve got a 15-year fixed-rate mortgage. Since you’ll be paying less interest than someone with a 30-year fixed mortgage loan, you’ll have less interest to deduct. But in the long run you are saving money by paying less interest. While it’s possible to qualify for a mortgage with a low credit score (even if it’s below 620), it’ll be more challenging and could result in a high interest rate. If this is your situation, your best bet might be to go for an FHA loan or a USDA loan. The former is designed for first-time homebuyers, while the latter is built for those buying a home in a rural area.
Forced Savings
Whatever it is, there’s always a reason to spend that money somewhere else. But doing that is really no different than choosing a 15-year mortgage in the first place. Besides that, choosing to make those extra payments would be up to you. Not to mention that, as we talked about earlier, the interest rate for a 30-year mortgage is higher than a 15-year mortgage. A shocking number of people ask just one lender or broker for a quote when they buy a home or refinance. The best way to get a great deal is to request quotes from multiple lenders.
Treasury & payments
On paper, it’s no harder to qualify for a 15-year mortgage loan than a 30-year one. Guidelines vary by loan type (conventional, FHA, or VA), but within each program, requirements for a 15- and 30-year loan are generally the same. Better yet, the total amount of interest you pay will be much, much lower because you’re borrowing the same sum for half the period. A loanDepot loan consultant can advise you on whether this kind of refinance can make financial sense.
What Are the Differences Between 15-Year and 30-Year Mortgages?
Paying off your mortgage by the time you retire is like a satisfying accomplishment and gift to yourself. In this scenario, getting a 15 year implies maxing out retirement accounts automatically. Would maxing out both you and your spouse’s 401k and Roth IRA and HSA (assuming your both healthy) be a better investment than saving many thousands of dollars in mortgage interest? This is actually a simple math problem and many financial advisors have come to a consensus. I’d only add that Dave Ramsey sees this as a behavior problem, and therefore he strongly prefers a 15 year mortgage.
How a 15-year mortgage stacks up against a 30-year mortgage
With this option, the total amount you pay over the life of the loan will usually be higher. This 15- vs. 30-year mortgage calculator can help you determine which option is right for you. If you already have a 30-year fixed-rate mortgage and are interested in refinancing to a 15-year mortgage, there are a couple key points to keep in mind.
Refinancing into a 15-year mortgage
30 year and choice of what to do with the difference in payment with a 15 year is better. Unfortunately, as of today, the 15-year fixed rate mortgage is now the same or higher than the average 5/1 ARM. That said, well-qualified borrowers are still getting much lower rates than average. But even still, taking out a 30-year fixed rate mortgage makes no sense if you plan to sell your home after 10.5 years. Strategically, you want to match your fixed rate with your homeownership tenure to save the most amount of money.
What were the lowest 15-year mortgage rates?
For buyers looking to maximize their purchasing power, we often recommend the 30-year term. Extending your loan term from 15 to 30 years can lower your monthly payment by thousands of dollars which can translate to hundreds of thousands of dollars in purchasing power. Yes, 15-year mortgages come with larger monthly payments, which can potentially put a strain on borrowers’ budgets and limit how much they can afford to borrow. The main benefits of getting a 15-year mortgage are a lower interest rate, less interest paid overall, and building equity faster.
Programs shown may not include all options or pricing structures. Rates, terms, programs and underwriting policies subject to change without notice. This is not an offer to extend credit or a commitment to lend. Some products may not be available in all states and restrictions may apply.This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. The best way to determine whether a 15-year fixed-rate mortgage makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.
How to compare current 15-year mortgage rates
If you plan to stay in your home for a long time, you might prefer a 15-year mortgage since you’ll pay off your mortgage sooner and benefit from owning your home free and clear. You’ll also build equity more quickly, which you can then access using a home equity loan, HELOC, or cash-out refinance. Some people want to pay off a mortgage before their children go to college. That’s fine, since it will take a large expense out of your budget at a time you’ll be taking on another big expense. But keep in mind that there are alternative ways to save for college, including tax-free 529 savings plans. The 15-year loan payment would be $2,108 exclusive of a required escrow payment for taxes and insurance.
Is a Mortgage Pre-Approval Letter Necessary to Make an Offer on a House?
A general rule of thumb is to look for a mortgage with a monthly payment of no more than a third of your gross monthly income. With rising interest rates, many home buyers seek ways to lower their borrowing costs. It’s a loan with a repayment period of 15 instead of 30 years and a mortgage rate that tends to be lower than longer-term mortgage rates.
Year Fixed Rate Mortgages
Many people don’t realize the financial advantages of choosing a fixed 15 year mortgage. In this kind of mortgage, the borrower not only pays less interest over time, but typically obtains a lower interest rate than on a traditional 30 year mortgage. Mortgage insurance is a mandatory addition to more lenient financing options that acts as an added protection for your lender in the event of a default. By requiring this additional payment, lenders allow buyers to purchase homes with far less than the 20% down that was needed in the early days of homebuying. A 15-year fixed-rate loan is intended for anyone wishing to take advantage of the lowest rates while also enjoying the perks of a fixed monthly payment.
Why Choose a 15-Year Mortgage Over a 30-Year Mortgage?
By opting in for a shorter mortgage term, you will pay down substantially more principal in fewer years, thus building equity at a much faster rate. Private mortgage insurance is required for all conventional loans with a down payment of less than 20%. Borrowers can opt to pay this monthly (most popular), in a lump sum at closing, or finance the lump sum into the loan. The cost for PMI varies depending on credit score, down payment, and loan term.
Lower interest rates
Since crossing above the 6.4 percent mark in April this year, 15-year mortgage rates have trended downward. While it remains to be seen whether they’ll continue falling into 2025, the consensus for now is that rates appear to be stable, even with Federal Reserve rate cuts. This table does not include all companies or all available products. After selecting your top options, connect with lenders online or on the phone.
Low current interest rates for 15 year mortgage rates – averaging 3.28% to 3.44% in January 2020 – save money, and buyers interested in paying down principal quickly often can do it without breaking their bank accounts. Monthly payments for a 15-year mortgage are a lot higher than 30-year mortgages, and if interest rates were higher, the monthly payment on the shorter term could be painful. But historically low interest rates have made 15-year mortgages increasingly popular.
This link takes you to an external website or app, which may have different privacy and security policies than U.S. We don’t own or control the products, services or content found there. The main advantages of a 15-year fixed mortgage are outlined below. At Bankrate we strive to help you make smarter financial decisions.
You spend some time reviewing your financial situation and deciding whether a shorter term is the way to go. Maybe you’re confident in your job stability and the prospect of an upcoming promotion or two in the next few years. Additionally, you have little to no debt and have no problem cutting back if things get too tight with your budget. The advantage of a shorter-term loan is that you’ll spend much less on interest once you pay off your home. It could even be hundreds of thousands of dollars, depending on where you live and your loan amount. That’s a lot of money you get to keep instead of giving to a bank.
One way to get the best of both worlds is to start out with a 30-year fixed mortgage then refinance into a 15-year loan if makes sense to do so. The 30-year fixed mortgage folks probably weren’t thrilled either, but at least they could cut their losses or continue to make smaller payments as they assessed the rather dismal situation. Oh, and the 15-year fixed borrower would save nearly $250,000 over the life of the loan thanks to a much lower interest expense. Because principal paydown takes such a long time on a 30-year loan, you might not have enough equity to sell if you only hold for a few years. Personal finance typically evolves from a lower income in your 20s to higher earnings later in your career. In your 20s, saving can seem impossible due to responsibilities like marriage, children or student loans.
If saving is too difficult with a 15-year mortgage, consider taking a 30-year mortgage and paying more than the required monthly payment when you can. Since monthly payments on a 15-year mortgage will be higher, you won’t have as much wiggle room and you might not be able to save as much. However, after 15 years you won’t have any mortgage payments, freeing up capital to invest and spend freely. With a longer term of 30-years, you spend a long time paying down mortgage interest before you make a meaningful dent in your loan principal. With a shorter-term loan, you’ll start to pay down the loan balance and build equity a lot faster.
We took out a 15 year mortgage due to lower interest rates and to force ourselves to have our home paid for by our target retirement dates. There’s a a lot of psychological security in having the roof over your head paid for despite the ability to instead invest the money in the market. Look at Q and the rate differential between 15 year and 30 year. At that time, it would be real hard to justify going with the 30 year and not biting the bullet with higher monthly payments of the 15 year. I’m a big fan of Sam, but this is one area where he and I definitely disagree.
Therefore, I would have probably waited at least another year and lost out on a $46,400 paper gain. From 2003 – 2004, the San Francisco real estate market went up about 8%. A higher monthly payment for a 15-year mortgage requires higher income and higher cash reserves. Therefore, your emergency fund or cash reserves will have to be higher to cover your higher monthly burn rate. Of course, someone who makes $152,000 could still pay $6,905 a month in mortgage payments for a 15-year mortgage.
One major advantage of a 15-year mortgage is its lower interest rate. Compared to a 30-year loan, a 15-year mortgage can carry an interest rate that’s about three-quarters of a percentage point lower. In fact, 15-year loans are some of the cheapest money you’ll find. A 15-year fixed rate mortgage gives you the ability to own your home free and clear in 15 years. When determining how much mortgage payment you can afford, consider the 28/36 rule. This guideline suggests spending no more than 28% of your gross monthly income on home-related costs and no more than 36% on total debts, including mortgage, credit cards and other loans.
Ultimately, 15-year mortgages can be a great way to build equity faster and lower the long-term cost of borrowing. But home buyers must also consider the higher monthly payments and whether they can afford them. They can help you choose the loan type that best suits your goals and financial situation. If you can comfortably afford the monthly payments on a 15-year fixed-rate mortgage, it’s definitely a good idea. You stand to save tens of thousands of dollars — maybe even hundreds of thousands, with a shorter loan term.But no type of mortgage is a good idea if you cannot comfortably make the monthly payments. Remember, the loan is secured by your home, so falling behind on payments could mean losing your home in a foreclosure.
Or the 30-year loan might let the borrower buy a bigger home or take on a larger mortgage. For example, a 30-year mortgage for a $300,000 home would cost $1,432 per month. The 30-year loan brings the payment under the $1,500 maximum and allows the borrower to take on a larger loan—presumably getting a bigger home or a better location. In this case, our borrower would still be making a higher monthly payment, but not as high as the higher-rate scenario. Our borrower would also save more than $115,000 in total interest. The offers that appear on this site are from companies that compensate us.
With a shorter loan period, buyers pay less in overall interest over the life of the loan compared to the 30-year fixed-rate option. However, savvy clients who invest the savings from their 30-year loans back into the market earn a conservative 5% annually, giving them a higher net worth than those who pursue the 15-year option. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts.