When you purchase a home and apply for a home loan, there are different options from which you can choose. The most common terms are the 15-year and 30-year loans. You can choose either fixed interest or an adjustable-rate.
Each option has its own advantages and disadvantages. If you’re leaning towards the 15-year fixed-rate mortgage loan, here are some of the things you need to know:
What does a 15-year fixed-rate mortgage mean?
This loan option means that you are going to pay your loan for 15 years and the interest is the same throughout that period. Based on your loan amount, the loan term and interest rate will dictate the amount of mortgage you have to pay each month.
When you get a shorter-term mortgage loan, compared to the 30-year term, you are paying less toward interest, and you are building equity faster. The faster you finish paying your loan, the quicker you can achieve full ownership of your house. Then, you can focus on other matters, such as saving for retirement, traveling, or paying your children’s college tuition.
Shorter-term loans usually have lower interest rates as well, but your monthly amortization will be higher than if you get a 30-year term. However, because you are paying off your loan in a shorter period, you are deemed as less risky to a creditor or lender.
Meanwhile, you will get a lower monthly payment if you choose the 30-year mortgage loan and can be approved for a higher loan amount as well. Whereas, in a 15-year fixed-rate loan, you are more likely to qualify for the less expensive property.
Also, a 15-year term makes lenders consider it less risky to approve you because they can get their interest back faster. A fixed-interest rate may be more beneficial to you because you are protected against the volatility of interest rates, as it can fluctuate every day. When the interest rate drops lower than your fixed-rate, you cannot enjoy the benefit. Although, with an adjustable-rate, your interest rate can also rise, and so will your monthly payment.
Is the 15-year fixed-rate mortgage loan right for you?
A 15-year fixed-rate mortgage loan has lower interest but higher monthly payments. However, if you can afford a higher monthly due, then it may be the best option for you. After all, you don’t want to pay more interest if it can be avoided. You can save tens of thousands of dollars on interest when you choose this over a longer-term mortgage loan.
When you choose a 15-year loan, you need a reliable income to be able to pay your monthly amortization while still having enough to cover your expenses and save some money for your future. If your budget allows, then you can go for this loan. Otherwise, ask yourself how you can stretch your finances when payments become too much due to uncertain income.
Should You Refinance to a 15-Year-Fixed Rate Mortgage?
Perhaps you have already bought a house with the 30 year mortgage. Now that you know a 15-year-fixed rate mortgage is better, maybe you are thinking of changing the plan. Or maybe someone got you stuck with an adjustable-rate mortgage (ARM) and now you’re simply tired of the rising and falling trend of the interest rate.
If it sounds like your situation, then perhaps you should consider refinancing your mortgage. This is definitely an option someone in your situation can consider. It is a smart move. Here’s why: it will allow you to lower the interest rate and even shorten the life of the loan. But before you decide to refinance, you need to know a few things.
The ultimate goal of refinancing your mortgage loan is to change an unattractive payment plan by adopting the 15-year-fixed-rate mortgage plan with a new payment. But it must be no more than 25% of your take-home pay. Only change your plan if you are on an interest-only loan, or your mortgage has more than a 15-year term.
Talk to Aceltis Group now, and we will walk you through the details, facts, and objectives that will help you decide which is the best loan product for you.