While taking a home loan, most of the fellow americans chooses FRM or fixed rate mortgage loans. It is the safety and stability of the loan which makes it so popular among the people. But many homeowners also want to reduce their loan term for a better savings as well as building home equity faster. For those people, a 15-year fixed mortgage will be suitable. But you must ask what are the basic qualities of a 15-year mortgage which makes it the best choice over the past several decades. Let’s find out in details.
What is a 15-year mortgage actually:
Before we start judging the nature of mortgage plan, we must know what a 15-year mortgage actually is. Like other fixed rate plans, 15-year mortgage also maintains the same interest rate till the end. So, your monthly payment amount will also remains unchanged every month.The borrower will get the loan amortization schedule which reflects the due monthly payment amount. The rate of interest is quite low than a 30-year mortgage.
So, now let's have a look at the positive aspects of this loan plan :
- Fast loan payoffs – You'll get your home within 50% less time than a 30-year mortgage. 15-year mortgage will be the most easiest way to pay off your loan way faster than any other conventional loans. Your home equity will also grow in 50% less time.
- Lower interest rate - As you have chosen 15-year mortgage, your loan period is less than other conventional loans. So, the rate of interest is comparatively lower than other loans. As you are paying off the loan much faster, your interest will be also reduced.
- Interest rate will be fixed - Throughout the whole loan term, your capital and interest payment amount will remain fixed. So, you don't have to worry about any fluctuating monthly payments or unstable interest rates.
- More saving towards your future plans – As I said it before, fixed interest rate and fixed monthly payment will give you a breathing space for saving. Lower interest rate also save your wallet and you can plan for your future expenses like retirement, childbirth etc. Due to its short loan term, you can build home equity much faster than other loan programs. By using your home equity, in future you can easily take another loan as per your requirement.
The negative aspects of this loan plan:
To properly verify 15-year mortgage plan, we must check the negative aspects too, these are -
- Higher capital repayment – 15-year mortgage plan can cost you about more when it comes to capital repayment. You'll be paying a greater part of your loan capital every month rather than an ARM or 30-year mortgage. You have to pay this amount each month without any fail, under any financial situation.
- Longer term can pay less – If you have the money and can afford higher interest, it will be safer to get a longer term. Longer term will definitely lower your monthly payment.
- Lower amount of loans – The monthly payments of this plan is higher along with low interest rates. That's why lenders will approve lower amount for your home loan. From a 15-year mortgage, the bank will earn less than what they might earn from a 30-year mortgage. So, as you'll pay less, you are also getting less initially.
Whether a 15-year mortgage is good for you or not, it can be properly determined only after a professional's feedback. But as per the discussion above, it can be understand that 15-year mortgage has the greater pros than cons. The rest decision is up to you, whether you want to pay less for a long time frame or you want to pay more for a short period.