What is a 15-year fixed rate mortgage?

A 15-year fixed mortgage is a type of home loan with a fixed interest rate and a repayment plan spanning 15 years. As a popular option for first-time homebuyers, 15-year fixed mortgages provide a stable option for home financing.

Supply and demand within the real estate market is constantly fluctuating, as is the monetary supply and cost of funds. This constant flux forces mortgage interest rates up and down along with the latest economic trends. This constant ebb and flow of the housing economy constantly opens new windows of opportunity for buyers to invest in a home.

When these interest rates dip low enough, many borrowers jump at the chance to lock down a mortgage with a fixed repayment structure.

Similar to a 30-year fixed rate mortgage , 15-year fixed mortgages feature an unchanging rate throughout their lifetime. This fixed rate structure provides borrowers with the added security of knowing exactly how much their loan payments will be each month.

The payment’s certainty and regularity extends for the full course of the loan, eliminating the possibility of unexpected spikes in a repayment plan. As a result, these borrowers are free to pursue their long-term financial goals with confidence that their mortgage payments will not be altered.

When interest rates drop, savvy buyers who recognize the benefits of fixed rate loans might seize the timing and apply for a 15-year fixed rate mortgage.

These buyers know that by locking down a fixed mortgage when interest rates are low, they’ll be paying less in interest throughout the course of repayment. Even if the economy falters and rates skyrocket again, a 15-year mortgage structure protects your minimum payment and will not change throughout the life of the loan.

A longer term plan, such as a 30-year fixed mortgage, can offer the same certainty, but will end up costing the borrower more in interest, as the repayment plan is twice as long. Although the scheduled monthly payments are higher for 15-year mortgages, you’ll end up paying less in interest when the loan is fully paid off.

The higher monthly payments associated with 15-year loans might lead some borrowers to question whether they can afford a mortgage loan. Let’s take a closer look at 15-year fixed rate mortgages and how they can help borrowers achieve their homeownership goals.

What is a good 15-year fixed mortgage rate?

15-year fixed mortgage rates offered by a lender are influenced by a number of factors. In addition to your own personal financial situation, the state of the economy and local housing market will have a heavy impact on how much you end up paying.

Since these variables can change over time, good 15-year fixed mortgage rates depend on when you decide to buy a home. For a better understanding of how the cost of financing can evolve over time and to put current 15-year mortgage rates in a historical context, let's take a look at how these numbers have changed over the past few years.

Average 15-year mortgage rates since 2018

Recent world events have sent ripples throughout the world economy, and the real estate market was no exception. While mortgage interest rates remained more or less steady throughout the years of 2018-2019, the coronavirus outbreak and resulting shift of lifestyle priorities has caused a surge of mortgage applicants all looking for a new place to call home.

According to FreddieMac , typical 15-year fixed rate mortgages in 2018 came with a 4% interest rate. In 2019, 15-year fixed mortgage rates dropped a bit, down to an average of 3.5%.

However, this dip in interest rates doesn’t compare to the steep drop that came following the 2020 pandemic. By December 2020, the cost of financing a home purchase on a 15-year plan fell all the way to 2.22%, with the pattern continuing into the early months of 2021.

While rates have decreased over the last three years, they could be getting ready to shoot back up on any day. Be prepared for these market trends to change with time.

How to find a low 15-year mortgage rate

The best time to apply for a 15-year mortgage is when preparation meets opportunity. Since approval for these loans is based heavily on your personal financial situation, a better rate can come about when borrowers take the necessary steps to build their savings and make themselves the best financing candidate possible. A sizable down payment and a decent credit score can go a long way towards bringing down the cost of borrowing money.

When the appropriate financial preparation is complete, keeping an eye on how interest rates develop over time and where they’re expected to go can provide the insight borrowers need to time their mortgage application for the best possible deal.

Another method to finding a great 15-year rate is to meet with multiple lenders and gain a comprehensive understanding of your borrowing capabilities and which mortgage option offers the best fit.

Advantages of 15-year mortgages

Depending on the borrower’s personal financial situation and long-term investment goals, a 15-year fixed mortgage could provide the homebuying advantages they’re looking for. Here’s a look at the main benefits associated with a 15-year mortgage.

Shorter loan repayment

The shorter repayment schedule for a 15-year fixed mortgage is one of the biggest advantages to this loan structure. Monthly mortgage payments are often the heftiest bill for homeowners and can weigh down any progress towards building savings or making further investments.

While regular payments will be higher, borrowers who opt for a 15-year loan structure can be free of that financial obligation in a much shorter amount of time, opening a path for new savings plans in addition to homeownership.

Less interest overall

Compared to other popular loan options, such as a 30-year fixed mortgage, a 15-year structure means borrowers make fewer payments throughout the course of the loan’s term. By making fewer payments, these borrowers end up paying less in interest when repayment is concluded.

By paying a bit more each month, borrowers on a 15-year plan pay interest for a shorter amount of time, providing a quicker path to other homeownership benefits.

Build equity faster

By paying off interest in a shorter timeframe, 15-year mortgage borrowers can push towards building home equity much faster as well. Over time, the amount of interest paid each month will steadily decrease, while the amount that goes towards a loan’s principal rises.

While the minimum required payment will remain the same through the life of the mortgage, the portion of that payment that goes towards building ownership in the property increases. On a 15-year plan, borrowers who make timely payments will own more of their property sooner than they would with a longer term loan.

Disadvantages of 15-year mortgages

Of course, going with a 15-year fixed mortgage comes with its own disadvantages. Before deciding that this loan structure is the best option for you, be sure to understand some of the drawbacks that can come this type of mortgage:

Higher mortgage payment

Possibly the biggest hurdle for borrowers interested in a 15-year mortgage is the higher price month to month. Given the shorter timespan of the loan, each payment will need to cover more principal in their scheduled payments than if the amortization schedule was stretched out longer.

As a result, the monthly payment on 15-year mortgages are substantially higher, which might present a barrier for buyers on a tight budget.

Qualify for smaller home

By condensing the entire loan repayment plan down to 15 years, borrowers might only qualify for a less expensive home. If the mortgage was stretched over two or three decades, monthly payments would be less, allowing the borrower to qualify for more expensive real estate.

Less money on hand

After moving into a new home, buyers might want to make improvements or additions to their new property. With the high price of monthly minimums on a 15-year fixed mortgage, these projects might have to be put on hold.

Any investment that would add value to a home or expand a borrower’s wealth portfolio might be just out of reach given the high monthly minimums. As a result, some borrowers can find themselves on a tight budget each month, spending years building equity in one investment rather than branching out to new wealth-building opportunities.

15-year mortgages vs. 30-year mortgages

Obviously, a 30-year mortgage is longer than a 15-year repayment plan, but that difference in length results in substantial differences for the borrower.

15-year mortgages typically come with a lower interest rate than their 30-year counterpart. While monthly payments might be substantially higher, interest will be paid off sooner as the amount that goes towards the buyer’s stake in the property grows.

However, opting for a 30-year fixed mortgage can greatly expand your homebuying options.By allowing you to pay off the loan for three decades, lenders tend to provide financing for more expensive properties than they do for 15-year plans.

On a 15-year mortgage, borrowers get a much lower lending limit, which could end up narrowing their buying options.

What is the difference between a fixed interest rate mortgage and ARM?

Unlike a 15-year fixed rate mortgage, the amount of interest paid on adjustable rate mortgages (ARMs) fluctuates after a given period of time. The required payment for these loans increases and decreases depending on external economic conditions, making the adjustable rate mortgage structure one of the riskier options for prospective homebuyers.

If the index that governs ARM rates changes, so do the monthly minimum payments for ARM borrowers. Since it’s difficult to predict the volatility of the market and impossible to control the state of the economy, homeowners with ARMs are left to hope these factors remain in their favor.

After a 5-year or 7-year ARM adjusts, the interest rate could change, possibly eating up an even larger chunk of the buyer’s monthly income. This can make financial planning even more difficult, as the mortgage bill on a given month could differ widely from what is required two or three years down the line.

One reason borrowers opt for adjustable rate mortgages is the possibility of saving money at the loan’s conclusion*. This type of financing usually comes with a lower initial interest rate than fixed repayment models. Following the fixed rate period on an ARM, mortgage rates could continue to drop. In this scenario, an adjusted interest rate would be even lower than when the repayment plan began.

This dip in monthly mortgage payments would depend entirely on external factors like the state of the economy and real estate market. A 15-year fixed rate mortgage, on the other hand, would be unaffected by economic volatility.

15-year refinancing vs. purchasing rates

Some homeowners who are able to pay a higher amount each month or are looking to spend less in interest might decide to refinance to a 15-year mortgage. This could help wrap up amortization at a much faster rate, if it can be afforded, and potentially help save money in the long term.

15-year refinancing rates are typically the same as purchasing interest rates, but lenders will often discount rates on a purchase to drive in new business. While lower 15-year purchase rates might indicate time to refinance, it’s not a guarantee that the decision would benefit your situation specifically. It’s important to check with your lender and be certain that the timing is right for a mortgage refinance.

15-year fixed mortgages vs. other mortgage types

15-year fixed rate mortgages are only one form of mortgages, but there are other mortgage opportunities at your disposal. See the alternative mortgage structures and how they compare:.

Is a 15-year fixed rate mortgage right for you?

A 15-year fixed rate mortgage is a popular option for homebuyers in different stages of life. For younger buyers, the shorter repayment plan could mean paying off the home earlier in their careers, granting even more financial flexibility, as well as the many benefits of homeownership.

Owning a home can also provide a retirement safety net. Older buyers with established income might decide to apply for a 15-year fixed rate mortgage in order to pay off their loan faster and establish ownership before they retire.

To better understand if a 15-year fixed rate plan fits with your financial goals, you can calculate your future mortgage payments .

To get started on your 15-year rate loan or other home financing plan, you can apply for a mortgage today .