A 15 Year Fixed Mortgage Rate

A 15 Year Fixed Mortgage Rate Loan can Pay Off Your Home Faster.

If you make enough money and are willing to make a larger mortgage payment each month, then you might want to take a look at a 15 year fixed mortgage rate loan. 15 year fixed mortgage rates are always about a half point lower than 30 year fixed mortgage rates. For example, if 30 year fixed mortgage rates are at 5%, then you can expect 15 year fixed mortgage rate loans to be around 4.5%.

In the first ten years of any mortgage loan, you are paying almost all interest. For example, on a mortgage loan of $200,000 at a fixed rate of 5% on a 30 year term, your fully amortized (principal and interest payment) will be $1073. Of that $1073, $833 is the interest payment. That means that only $240 of that $1073 payment goes towards principal.

As the fully amortized loan progresses, more and more of the payment will go towards paying down the principal loan balance, but you can see that by paying so much interest for so many years, you end up paying quite a bit more. In the previous example, the total finance charge (interest paid) will actually total more than $219,000 over the 30 year period. So for a $200,000 loan you will actually end up paying $419,000.

The same $200,000 home loan at 4.5% interest rate (remember, half a point less) for a 15 year fixed mortgage rate term instead of 30 year term will mean a monthly payment of $1530. Of that $1530, only $750 will go towards interest while the remaining $780 will go directly towards principal. This means that over the course of the 15 year fixed mortgage rate loan term, you will only pay $93,000 in finance charges (interest). That is $116,000 less than the 30 year loan.

Do you think that you could spend $116,000 on something else instead of your home loan?

The other big positive effect of paying your mortgage quicker with a 15 year fixed mortgage rate loan is that you end up building valuable equity.

Equity is the difference between what you owe and what the home is worth. Assuming that the $200,000 property you purchased fifteen years ago is now worth $300,000, you will be able to accrue a total equity of $300,000 by paying off your loan quicker.

This all gets added to your net worth and will serve you well when you retire or if you decide to leverage your property at a later date.