What Is A 15-Year Fixed Mortgage?
Fixed rate mortgages are among the most popular types of mortgages. They provide an element of financial stability through the fixed note rate and payment. However, within the fixed-rate world, there are variations. And a 15-Year fixed mortgage is one of the more popular mortgage loan options with a group of borrowers who opt to build up home equity faster, and rid themselves of the whole mortgage obligation a whole lot sooner.
By definition, a 15-Year fixed mortgage has the same fixed interest rate and payment throughout the duration of the mortgage. However, the payment is often higher than it would be when compared to the same rate on a 30-Year fixed mortgage. This is due to the amortization schedule being spread over 180 payments (15 years) rather than 360 payments (30 years).
Due to this shortened amortization period, the payment is often higher. But each payment allocates substantially more towards principal reduction.
The first distinct advantage to a 15-Year fixed mortgage is its obvious fixed rate. This means no adjustments in payment or rate. This means complete financial stability and the ability for a borrower to forecast his or her monthly payments looking forward 15 years. The second is the ability to own a home free and clear of a mortgage in 15 years, and not 30 years like a large majority of Americans. Equity build-up means financial security, since a borrower now has an asset and not a liability. The third distinct advantage is that the interest rate on a 15-Year fixed mortgage is typically lower than a 30-Year fixed mortgage. This is simply because a lender or investor is willing to take a lower yield due to the shortened repayment period. This causes a win-win scenario for both the borrower and the lender.
Like other loans, the 15-Year fixed mortgage has its disadvantages as well. One distinct disadvantage is that it will have a much higher payment when compared to a 30-Year fixed mortgage. So once a borrower takes out a 15-Year fixed, he or she must assess all of the what-if scenarios. Loss of income or a job, a new addition to the family, and other what-ifs must be considered. If the borrower loses his or her job, will he or she be able to pay the higher payment? If not, will he or she be able to refinance?
Homeowners or buyers interested in owning their home in half the time that most Americans do, can make a sound decision with the 15-Year fixed mortgage.
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