When trying to purchase a new home, finances can be very overwhelming. There are personal loans, home improvement loans, fixed and variable rate mortgages, FHA mortgages, and a whole host of other loan types. As if finding your dream home wasn’t stressful enough, you’ve also got the worry of finding the right deal. One particular plan that might have caught your eye is the 15-year fixed-rate mortgage. Got questions? We’ll help you make sense of this option and show you some of the best 15-year fixed rates around.
What is a 15-Year Fixed-Rate Mortgage?
It’s a mortgage package that does what it says on the tin. In other words, the mortgage is taken out over 15 years, and throughout that time, you, the borrower, will be charged the same mortgage interest rate. It’s a very uncomplicated and easy way to finance the purchase of your home. If you’re wondering whether it’s a bona fide option, don’t fret any longer. All 15-year fixed rate mortgages meet the rules and guidelines set out by Fannie Mae, more officially known as the Federal National Mortgage Association.
A loan of this kind is also called a “vanilla wafer” loan. One of the most significant benefits of a vanilla wafer loan is that they’re much cheaper. Although we should point out that your monthly payments will be higher, only because you’re repaying the loan over a shorter period.
Advantages of Choosing a 15-Year Fixed-Rate Mortgage
What is the best way to pay for a house? There’s no better way to pay for a home than in cash. Unfortunately, however, there are very few people with thousands of dollars just sitting around waiting to be spent. You might have some savings, which you can use for a down payment, but you will most likely have to pay the remaining balance with the help of finance. Those of you who need to take out a mortgage are going to be interested in the benefits of a 15-year fixed-rate mortgage. Here they are for your perusal.
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1. The interest rate and monthly payments are the same throughout the term of the loan.
When you take out a mortgage to pay for your home, you pay a monthly payment that repays a combination of principal and interest. With a fixed-rate mortgage, your monthly payments stay the same because the interest rate never changes.
You’ll be amazed by how much stress this saves in the long run. No more worrying about interest rates rising and struggling to find the extra cash to make the payments. As you may know, interest rates can go up and down, and the housing market can be very volatile. If you’ve got a 15-year fixed-rate mortgage, you pay the same for 15 years, regardless of any changes in the housing market.
2. The interest rates will be lower than those of traditional mortgage loans.
15-year fixed-rate mortgages, on average, have a lower interest rate than a mortgage of a longer loan term. The reason for this is quite simple. The risk for the lender is much lower. As a borrower, you can expect to pay between 0.25% and 1% less than a 30-year mortgage, for example. A quarter to one percent doesn’t sound like a lot. Over fifteen years, though, it can save you thousands of dollars – money you could save or spend on other things, like last-minute travel deals.
Fees are another area where there are savings to be made. Fees charged by VA lenders or included in FHA mortgage rates don’ t have to be paid with a 15-year fixed-rate mortgage.
3. The cost overall is much less.
When you’re organizing a mortgage, you need to pay attention to the total cost of the loan, rather than just the monthly payment. A 15-year fixed-rate mortgage loan may have higher monthly payments than a 30-year loan, for example. However, over the total length of the loan, you’re paying back much less.
The difference between a 30-year mortgage and a 15-year mortgage for loan amounts of $250,000 is a staggering $97,000 or more. That’s a significant amount to be able to put in your savings account.
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4. The equity in your home increases quickly.
Your home equity is the difference between the value of your home and the amount outstanding on your mortgage. In other words, it’s your home loan-to-value ratio. The ideal situation to find yourself in is with as much equity as possible. The more of a home you own, the higher the equity is.
To build equity as quickly as possible, you have to be paying down the principal of your loan. With a 15-year fixed-rate mortgage, this happens much quicker. From your very first payment, you’re paying more toward the principal than a more traditional mortgage of 25 or 30 years.
5. Your home is all yours after 15 years.
A 15-year fixed-rate mortgage is also known as a fully amortizing loan. What this means is that you’re paying off debt in a planned and incremental way. If you make all of your scheduled payments throughout the 15-year term, your mortgage will be paid off, and you will find yourself in a powerful position.
Before we carry on, in the interests of providing an excellent guide, it’s only fair to mention some of the disadvantages of choosing a 15-year fixed-rate loan.
6. Your monthly payments are higher.
One of the most significant downsides of a 15-year mortgage is that the repayments are often significantly higher than a 30-year mortgage. If your budget is already limited, then this option may not be the best for you due to the higher monthly mortgage payments.
7. The amount you’re allowed to borrow may be lower.
Because your mortgage payments are much higher, the lenders you approach will probably only allow you to take out lower amounts of money. They want to be sure you’ll be able to make the repayments and not be short.
8. Your money is locked into your house.
With a 15-year fixed mortgage rate, you will be paying more every month for your mortgage. At the same time, you’ll be investing less in other things, some of which might be more lucrative to invest in. The best person to talk about this situation is a financial adviser. They’ll be able to lay out your options with regards to your financial goals.
9. Your tax deductions will change for the better.
If you pay a mortgage, there’s a chance to include your mortgage interest as a deductible on your annual tax return. If you have a 15-year mortgage rather than a 30-year one, this deduction stops sooner.
Lenders with the Best 15-Year Fixed-Rate Mortgage Rates
Now that we have laid out the downsides of 15-year fixed-rate mortgages, below are some of your options for moving forward. Also, we cover the kinds of rates you can expect to pay if you’d still like to pursue this plan.
AimLoan.com
AimLoan has more than 20 year’s experience as an online lender. Lending options are available in all 50 US states, and the company offers low rates and fees. They received a BBB Torch Award for Ethics and have been given recognition for their community involvement. You can see more about both these awards on the AimLoan website. Looking at the various review sites where this lender is mentioned, you can expect to pay a 3.250% APR, annual percentage rate.
Along with 15-year mortgages, AimLoan also provides 30-, 20-, and 10- year confirming loans, adjustable-rate mortgages, jumbo loans, VA loans, and much more.
The lender’s website is very informative; it comes with tools and resources, and a helpful online instant rate quote. For the latest rates, you complete an online form with some necessary details and receive an estimated rate instantly. AimLoan.com can also help with your regular property payments by opening an escrow account.
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FHA
If you don’t have enough saved for a down payment but are eager to save money and own your own home quick, a 15-year fixed rate FHA loan is the perfect answer. The FHA works by not actually offering loans, but instead facilitates loans from various other lenders. You can expect to pay between 3.250% and 4.25%. For an accurate estimate, it’s best to visit multiple lenders’ websites and make inquiries about their FHA mortgage loans.
The advantage of choosing FHA loans is that the closing costs are lower, lending standards are more relaxed, and a smaller down payment is required from the borrower. The mortgage does, however, have to be for your primary residence.
Is it Worth Refinancing to a 15-Year Fixed-Rate Mortgage?
If you’ve already got a mortgage on a much longer-term, you’re probably wondering whether refinancing is an option. If you’re paying off an interest-only loan or an adjustable-rate mortgage, you might also be asking the same question. You should consider a refinance deal if it means your interest rate is lowered and you pay off your loan much earlier.
There are, however, occasions when it’s not the smart thing to do. If, for example, your current rate is very favorable, the cost of a refinance generally isn’t worth it.
Tips for Getting the Best 15-Year Fixed-Rate Mortgage
You’ve decided you like the idea of a 15-year fixed mortgage rate, but how can you ensure you get the best rate possible? There are several things you can do to improve your chances. The better your finances look, the more likely you are to get the best deal. FICO score, debt-to-income ratio, and employment history combined make up your financial picture, and these things are the key to ensuring a reasonable rate.
Improve Your FICO Credit Score
The three digits of your FICO credit score can make a big difference to your mortgage interest rate. If your credit score is right, you can expect to be offered the best possible price and not be hit by costly lending terms.
Lenders use your credit score to determine if you are reliable or not. It’s considered to be an accurate benchmark for your ability to repay your debt. If your score is high, it’s less likely that you’ll default on your debt.
When a lender is confident you’re going to repay in time, they’ll offer you a lower rate.
There are lots of things you can do to improve your credit score. Request your credit score today and see whether yours need some TLC. Ways you can improve your credit score include:
- Paying your bills on time
- Paying down or clearing any credit card balances
- Removing collection accounts if possible
- Becoming an authorized user of a friend or family member’s credit card account
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Have a Steady Job
If you’ve had a steady job and income for the last two years, you’re going to look attractive to any lender you approach. You may be self-employed or have several part-time jobs rather than one full-time one. In these cases, you may find that lenders are less willing to offer you an attractive deal. The reason for this is because lenders don’t know if you will have a part-time job permanently. However, one full-time job guarantees a steady flow of income. Having a stable job means your debt-to-income ratio looks much better.
As part of the application process, you’ll have to produce pay stubs and W-2s.
Save for a Down Payment
If you’re able to make a sizeable down payment, you’re likely to be offered a lower mortgage rate. Lenders are willing to accept small amounts, but the more you’re able to save yourself, the better your monthly payments. Another issue, if your down payment is low, is that you’ll also have to pay private mortgage insurance. This homeowner’s insurance can range from between 0.05% to 1% of the original loan amount annually. The level at which you have to pay these additional homebuyers insurance premiums is 20%.
Shop Around
It always pays to shop around for whatever service or product you’re looking to purchase. It’s no different if you’re looking for a mortgage. Compare different rates and lenders fees, because they’re going to differ with each lender you approach.
It’s a common misconception that making too many mortgage inquiries lowers your credit score. However, FICO allows you to make multiple credit inquiries. This practice is known as rate shopping, where you’ve got a 30-day window for mortgage lenders to pull your credit reports with no negative impact on your score.
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Lock in Your Rate
When you’re looking at different lenders, and you find one you’re happy with, it pays to ask the lender to lock in your rate. As you probably know, rates can fluctuate daily, weekly, and monthly and the closing process of buying a property can take weeks, even months. There’s often an additional fee you have to pay for this service, but it’s worth the extra expense. If mortgage interest rates rise, you’ve more than likely covered the cost.
Negotiate a Deal with the Help of Quotes
Did you know that mortgage rates are subject to negotiation? The quote you receive from a lender is not set in stone. Loan officers have been known to increase fees and rates to increase the amount of commission they receive.
If you’ve got a handful of mortgage quotes, you can use these for negotiating the best mortgage rate. Show a lender that you’ve got a better interest rate at hand, and they might be willing to beat it.
This strategy does not work every time, but you might get lucky. In addition to negotiating a lower interest rate, you might also be able to lower the closing costs and origination fees.
Historically, 15-year mortgage rates have always been lower than other longer-term options. This makes them worth considering if you’re a first-time homebuyer, real estate investor, or if you’re investigating the possibility of a better mortgage deal and want to refinance.
If you’re looking into buying your dream home, we’d love to hear about your experiences. Or, if a 15-year mortgage has worked for you, let us know. Real-life experiences play a vital role in the information service we provide for our readers. You can leave your comments below.
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