How does a 15-year mortgage work?
A 15-year mortgage is a fixed-rate loan amortized over 15 years. While your monthly payment will never change, the amount that goes toward your principal (the amount you actually borrowed) will increase over time. At the same time, the amount that goes toward interest will decrease.
Fifteen-year mortgage terms are an alternative to the more popular 30-year mortgage. Loans amortized over 15 years come with much lower total interest costs. This is because you pay interest for half the time. Another contributing factor: the annual percentage rate (APR) associated with a shorter loan term is usually lower. But because you’re paying off your loan in half the time, monthly payments are much higher.
The good news is that your interest rate and payment will never change during the life of your loan. That’s because 15-year mortgage rates are fixed-rate loans. You’ll know up front when you borrow exactly when you’ll become debt-free and what your total costs will be.
How to compare 15-year mortgage rates
Fifteen-year mortgages are offered by banks, online lenders, and credit unions. Mortgage brokers (who gather your financial documents and match you with lenders) can also help you apply for one. Rates and lender requirements vary. Borrowers should get quotes from multiple mortgage lenders. As you look, keep an eye out for lenders that allow you to get pre-qualified. This allows you to get a quote without a hard inquiry, which will slightly lower your credit score.
Make sure you’re comparing mortgage rates and terms only to other 15-year mortgages. It’s important to look at the interest rate, points (prepaid interest), loan origination fees and costs, and qualifying requirements when comparing 15-year mortgage loan rates. Also pay attention to the Annual Percentage Rate (APR) of each loan. This number expresses total annual loan costs factoring in both fees and interest. It can help you to easily see the big picture as you compare one loan to another.
View more information: https://www.fool.com/the-ascent/mortgages/15-year-mortgage-rates/