The Low Cost 15-Year Fixed Rate Mortgage

By amortizing your fixed rate mortgage over 15 years instead of 30, you'll save tens of thousands in interest. But of course, there are drawbacks.

This page:

  • Explains why you save so much with a 15-year mortgage

  • Helps you decide if this type of loan is right for you

Over the next few pages, we take a look at standard and hybrid ARMs, and some special mortgages for those with particular financial needs.

The second part of this guide examines the rest of the decisions you have to make when choosing your mortgage. Refer to the table of contents if you're looking for specific information.

The good news about 15-year FRMs

If you can afford the large monthly payments on a 15-year FRM, this type of mortgage saves you tens of thousands of dollars over the life of the loan.

A 15-year FRM is a great option for home-buyers who plan on buying an inexpensive or moderately priced home, who value financial security, and who are good at budgeting but not prone to stock market investing.

This type of home loan is simply miles cheaper than any other standard mortgage type. FRMs also build home equity very quickly, which can be a great source of financial security. Right from the start, much more money goes toward the principal instead of the interest, so you build equity percentages with a 15-year FRM years before you would with a 30-year loan.

And, of course, the advantages are capitalized when interest rates are low and you can hook a low rate for life.

The drawbacks of a fixed 15-year mortgage

However, expensive homes often become unaffordable with a 15-year FRM because the monthly payments are just too large. And although the savings in interest between a 15-year and a 30-year loan are considerable, a 30-year home-buyer who invests the monthly difference wisely may see returns that outweigh the total interest savings with a 15-year mortgage.

Of course, if you're not one to invest, a 15-year mortgage is always the cheaper option by many thousands of dollars.

Interest paid on a home mortgage is usually tax deductible, which means you have less to deduct on a 15-year plan. However, the tax savings you miss will likely be small compared to your savings on interest.

To summarize, when rates are low, a 15-year FRM is perfect for a home buyer in the market for an inexpensive or moderately-priced home, who can afford large monthly payments and has their eye on the bottom line when it comes to total cost. Home buyers planning on staying in their new home for a long time or who are interested in building equity quickly should also consider the 15-year FRM.

On the next page, we look at adjustable rate mortgages - if and when the time is right for you to choose one.

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