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15 Year Mortgage - Is It Right For You?


15 Year Mortgage

Is a 15-Year Mortgage Right For You? - Throughout the years, the most popular type of home loan has always been a 30-year, fixed-rate, conventional mortgage. Most Americans have picked this mortgage over all the others because with a 30-year loan, their monthly payments remain low because of the long time frame. But now, there is another option that is gaining in popularity among homebuyers.

Statistics show that consumers are slowly starting to favor 15-year, fixed-rate mortgages over their 30-year counterparts because of how affordable these types of loans have become in recent years. In fact, according to the Mortgage Bankers Association, 15-year home loans accounted for 23% of all mortgages – new loans and refinances – issued in November 2012. That’s a 51% increase over November 2011.

Statistics from another source – tracking firm CoreLogic – show similar increases in popularity for 15-year mortgages. They report that only 8.5% of all loans issued in 2007 were for 15-year mortgages, but say that number increased to 35% of all deals negotiated in 2012. So it's evident that this type of loan is definitely becoming more popular, but is it the right choice for you? Well, experts say that depends on your income level! Mortgage rates continue to hover near all-time record lows for all types of loans, and 15-year mortgages almost always have a lower interest rate than a 30-year loan simply because you are paying the money back to the lender twice as fast.

The downside? You’ll have to make higher monthly payments. However, since interest rates are so low, many homeowners can still afford the higher overall payments of a 15-year loan. In the end, those low interest rates, combined with several other reasons, make for an offer they can’t turn down.

So, what are those other reasons?

First, you're finished paying for the home much sooner. And, because the loan is for a shorter time period, homeowners with a 15-year mortgage actually begin paying more towards the principle much sooner than their counterparts who choose a 30-year loan.

How much sooner, you ask?

According to a recent report on Aol.com, for homeowners with a 15-year mortgage, more than half of their monthly payment is already going towards the premium and not interest charges by just the second year of the loan. Typically speaking, that doesn't happen until the 11th year of a 30-year mortgage.

So, obviously, for borrowers who can afford to pay a little bit more each month, a 15-year mortgage is an attractive option. But economists warn that this type of loan isn't for everyone. If you have a clean credit report, a steady income, and can afford to make the monthly payment on a 30-year loan – but can't say the same for the pricier 15-year mortgage, it's better to go the 30-year route. After all, you'd rather keep your home and spend more time paying it off, than not be able to make your monthly payments and become delinquent on your loan simply because you wanted a better deal in the beginning. In other words, start by asking yourself, “Can I afford the 15-year mortgage?” As long as you’re OK with higher monthly payments – and can afford them – the 15-year route is an option worth considering. If not, stick with the 30-year mortgage options when discussing a loan with a lender. It really is that simple!

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