Quick Introduction to 15 Year Fixed Mortgages
Homebuyers who aren’t interested in making mortgage payments for 30 years in a row can look into getting a 15-year fixed-rate mortgage. While these mortgage products aren’t as common as 30-year fixed-rate mortgages are, they are an alternative that can offer homeowners several benefits.
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15-Year Fixed Mortgage Rates
A homebuyer who qualifies for a 15-year fixed-rate mortgage makes fixed payments over the course of 180 months, instead of the 360 months with a 30-year fixed-rate mortgage. If you opt for a 15-year fixed-rate mortgage, your interest rate and your monthly mortgage payment will remain the same every month for the life of the loan (since your mortgage rate is fixed). While the ratio of how much of your monthly payments go toward the interest versus the principal changes over the course of the loan, your payments themselves stay the same for the entire 180 months.
With a 15-year mortgage, your mortgage payments will be higher than the more popular 30-year fixed-rate mortgage due to the shortened loan term. However, your interest rate will typically be lower with a 15-year term compared to 30-year term mortgage, meaning you pay less in interest over the life of the loan.
Historical 15-Year Fixed Mortgage Rates
The U.S. economy fell into a recession in the early ‘90s following a sharp increase in the cost of gasoline and a crisis involving a number of savings and loan associations. By 1992, the recession had ended and the average annual rate on 15-year fixed mortgages was 7.96%. Annual mortgage rates in the late 1990s hovered around 7%, on average.
Then the housing bubble burst in 2007. That year, the average annual rate on 15-year fixed mortgages was 6.03%. As the country plunged into another recession, mortgage rates continued to fall. The lowest average annual mortgage rate on 15-year fixed mortgages since 1991 was 2.66%. This occurred in both late 2012 and in April 2013. As of April 2018, the average 15-year fixed mortgage rate was 4.09%.
15-Year Fixed Mortgage Rates
|Year||Average Annual Mortgage Rate|
When 15-year fixed mortgage rates are low, owning a home seems more affordable. As rates fall, the demand for housing generally rises and so do home prices.
How 15-Year Fixed Mortgage Rates Stack Up Against Other Mortgage Rates
Mortgage rates tend to be lower with 15-year fixed mortgages than 30-year fixed mortgage rates because lenders take into consideration that you’ll pay back the loan in a shorter amount of time. This can be advantageous to the lender as it can recoup the loan in half the time as a typical mortgage.
However, it may be harder to qualify for a 15-year mortgage, meaning folks who do qualify generally have excellent credit, solid income and a low debt-to-income ratio. The higher monthly payments that accompany 15-year mortgages mean lenders usually have higher standards for qualifications with these loans as compared to 30-year mortgages.
In general, you’ll find that fixed mortgage rates are higher than adjustable rate mortgage (ARM) rates. Anyone who wants a variable rate mortgage will have a lower mortgage rate at the beginning of their loan term. But over time, mortgage rates on adjustable rate mortgages increase and so do the monthly payments the homeowner has to make. With a 15-year fixed-rate mortgage the interest rate may start a bit higher than an ARM, but it will stay consistent for the entire term of the loan.
15-Year Fixed-Rate Mortgage Rate Quotes
Mortgage rate quotes are estimates that let homebuyers know what sorts of interest rates and APRs (the amount of interest they’ll pay per year, plus the cost of fees) they’re eligible for. A mortgage rate table like the one above lets you compare the interest rates that different companies are offering.
Rate quotes combine a variety of personal details - such as the size of a homebuyer’s down payment and his or her credit score - to provide homebuyers with some insight into what getting a 15-year fixed-rate mortgage could cost them. By comparing mortgage rates, homebuyers can also get a sense of how high their loan origination fees (mortgage loan application processing fees) will be.
For example, a family of three looking at houses in the $150,000 range could have monthly mortgage payments of $840 (with 20% down, not including tax and insurance) with a 15-year fixed rate mortgage at 3.2%. If that same family chooses a 30-year mortgage at 3.8%, monthly mortgage (principal and interest) payments would be $559. That’s roughly $281 less each month ($3,372 a year!) with a longer term. For some families, it makes sense to save the extra money or have it as cash on hand for groceries, emergencies or college savings. On the other hand, some families would rather pay off the mortgage as quickly as possible, and have room in their budgets to do so.
That’s another reason why you should take advantage of mortgage calculators and loan quotes. It can help you get a better picture of what your monthly costs would be with different combinations of loan types and terms.
How to Get a Low 15-Year Fixed Mortgage Rate
If you want to lower the cost of homeownership, you can start by finding a way to lower your mortgage rate. The higher your mortgage rate, the more interest you’ll pay over the life of your home loan. That’s why it’s important to compare mortgage rates before committing to working with a specific lender.
The homebuyers who qualify for the lowest mortgage rates tend to have good credit scores. According to the FICO scoring model, you’ll likely need to have a credit score of at least 740 if you want access to the best rates. Of course, the exact credit score you’ll need to qualify for a 15-year fixed-rate mortgage will depend on the mortgage lender you choose to work with.
If your credit score isn’t as high as it could be, it might be a good idea to work on improving your credit before you apply for a mortgage. Eliminating debt, paying bills every month on time and in full and keeping your credit utilization ratio (the amount of credit you’ve used relative to your credit line) below 30% are all things you can do to boost your credit score and put you in the best position to get a favorable mortgage rate.
While it’s possible to qualify for a mortgage with a low credit score (even if it’s below 620), it’ll be more challenging and could result in a high interest rate. If this is your situation, your best bet might be to go for an FHA loan or a USDA loan.
Other factors that have an impact on mortgage rates include the number of mortgage points you’re paying for and the amount of money you’re willing to put down. One mortgage point can lower your mortgage rate by as many as 25 base points. And if you make a large down payment (industry standards say you should put down at least 20% to avoid paying for private mortgage insurance), you’ll likely end up with a lower mortgage rate.
The amount of debt you’re carrying can also affect the mortgage rate on your 15-year fixed mortgage loan. If you’re using a large percentage of your paycheck each month to pay off debt and your debt-to-income ratio is 36% or higher, you might get stuck with a high mortgage rate. In the worst case scenario, a mortgage lender could reject your mortgage application altogether, assuming that you can’t afford to take on additional debt.
Taxes and 15-Year Fixed-Rate Mortgages
If you’re a homeowner with a 15-year fixed-rate mortgage, you can deduct the mortgage interest you’ve paid on your income tax returns, if you meet certain conditions.
Generally, you cannot get a deduction for your paid mortgage interest if you don’t itemize your deductions (unless your state lets you deduct mortgage interest on your state income tax return after you’ve taken the standard deduction on your federal return). And if you’re someone with a high net worth and you’ve taken out a mortgage loan with a value above $1 million, you can’t qualify for the mortgage interest deduction either.
If you haven’t taken on a jumbo loan and you’ve decided to itemize your deductions, you might be able to take advantage of an additional tax deduction if you have a home equity loan. The IRS allows homeowners to deduct their mortgage interest on up to $100,000 of home equity debt.
It’s important to keep in mind that your tax savings will likely be low if you’ve got a 15-year fixed-rate mortgage. Since you’ll be paying less interest than someone with a 30-year fixed mortgage loan, you’ll have less interest to deduct. But in the long run you are saving money by paying less interest.
Refinancing Your 15-Year Fixed-Rate Mortgage
By taking on a 15-year fixed-rate mortgage, you’ll be taking on a loan with a smaller mortgage rate attached to it (compared to the 30-year fixed-rate mortgage). You’ll also be paying off your mortgage and building home equity at a faster rate.
If your 15-year fixed mortgage rate isn’t as low as you’d like it to be – or mortgage rates have fallen since you were approved for your mortgage – you can refinance your loan in order to try and get a better rate. But a lender will have to approve you for a refinance, meaning that you’ll have to complete a lot of paperwork, pay fees and apply for a new loan all over again.
By refinancing your 15-year mortgage loan, you’ll also be extending your repayment period by another 180 months. If you’re only a few years away from paying off your mortgage, refinancing might not make much sense. On the other hand, if your circumstances have changed since you applied for the 15-year mortgage and you’d like lower monthly payments, you can refinance to make your mortgage term longer. Just remember you will pay more money in interest in the long run if you do that.
Big Cities with the Healthiest Housing Markets
With SmartAsset’s interactive Healthy Housing Markets map, you can locate the healthiest housing markets among America's largest cities. Search for the overall healthiest markets or look specifically at one of our four healthy-housing indicators: stability, risk, ease of sale and affordability. Hover over a city or state to get more information.
|Rank||City||Average Years Living in Home||Avg. Homes with Negative Equity||Homes Decreasing in Value||Avg. Days on Market||Home Costs as % of Income|
Methodology A healthy housing market is both stable and affordable; homeowners in a healthy market should be able to easily sell their homes, with a low risk of losing money over the long run. So, in order to find the healthiest housing markets in the country, we considered the following four factors: stability, affordability, fluidity and risk of loss.
We measured stability with two equally weighted indicators: the number of years people remain in their homes and the percentage of homeowners with negative equity (as homeowners with negative equity are more likely to go into foreclosure). To account for our second factor, risk, we used the percentage of homes that decreased in value. To determine housing market fluidity, we looked at data on the average time a for-sale home in each area spends on the market - the longer it takes to sell, the less fluid the market. Finally, we calculated affordability as the monthly cost of owning a home as a percentage of household income in each county and city.
Affordability accounted for 40% of the housing health index, while each of the other three factors accounted for 20%. When data on the above four factors was unavailable for cities, we excluded these from our final rankings of healthiest markets.
Sources: US Census Bureau 2015 American Community Survey, Zillow
*For this study we looked at the 100 biggest U.S. cities by population with available data