15 Year Mortgage Rates: How Do They Work?

15-year mortgage rates currently stand at 5.71% — an increase from last week’s 5.63% and significantly lower than last year’s 7.06%. These rates determine the interest that US homebuyers will pay on a 15-year mortgage.

With 15 year home mortgage rates, you can pay off your loan over a short period and save money on overall interest costs. You can also build home equity rapidly.

On the other hand, monthly payments for 15-year mortgages are higher than those for 30-year mortgages. Get pre-approved for a home loan today to determine your ideal loan amount and plan your monthly payments!

What Is a 15 Year Mortgage Rate?

15 yr mortgage rates define the rate of interest for a home loan with a 15 year term. It is a fixed-rate mortgage, i.e. the interest rate and monthly payment doesn’t change during the loan period.

15-year mortgages carry less risk for the lender. So, the interest rate is typically 0.5% to 1% lower than the 30-year mortgage rate. In this type of loan, more of your payment goes toward repaying the principal, and you build equity faster.

How Does a 15 Year Mortgage Work?

A 15 year fixed rate mortgage is a structured plan to finance a home. There is a set term and a fixed interest rate. For this type of loan, lenders require a minimum down payment of 3%.

Your mortgage payment is made up of two main components: the principal and the interest. It may also include Private Mortgage Insurance (PMI) if your down payment is less than 20% of your purchase price.

What Are the Requirements?

Here are the requirements you must meet to qualify for 15 year fixed mortgage rates:

• Credit Score: A credit score of 620 or above improves your chances to secure a 15-year mortgage.
• Debt-to Income (DTI) Ratio: Lenders look for a DTI ratio of 43% or lower to assess your creditworthiness.
• Down Payment: You need to make a down payment of at least 3%, although it can go as high as 20% depending on the lender.
• Documents: You must submit documents that prove your income and ability to repay the loan. This includes W2s, tax statements, or pay stubs.

Types of 15 Year Mortgages

The main types of 15-year mortgages are:

15 Year vs. 30 Year Mortgage

Here are the key differences between a 15-year vs. 30-year mortgage: 

15 Year Refinance Mortgage Rates

Homebuyers refinance to repay an existing loan at more favorable terms. You can replace your current home loan with a 15-year refinance mortgage, which comes with lower interest rates.

However, your monthly mortgage payments will be higher as compared to a 30-year mortgage. You also have to pay upfront closing costs between 2 to 5% of the new loan amount.

Pros and Cons

It is important to weigh the pros and cons before you opt for 15 year home interest rates:

 Pros 

1. Reduced Overall Interest: With a 15-year mortgage, you save on overall interest payment as compared to a 30-year mortgage.
2. Faster Equity Building: The short repayment period can help you build home equity faster. You can borrow or draw credit against this equity if you need additional funds to make home improvements. 
3. Early Mortgage Payoff: You can repay a 15-year mortgage relatively quickly and achieve homeownership sooner than with other loan types.

Cons 

1. High Monthly Payments: 15-year mortgages require high monthly payments compared to 30-year mortgages.
2. Strict Requirements: You must fulfil all the credit score, DTI and down payment requirements to qualify for this loan.
3. Less Financial Flexibility: The large monthly payments mean that you will have less cash available for other financial goals.

Bottom Line

A 15-year fixed mortgage can be beneficial for homebuyers, thanks to its low interest rates. You can accumulate equity faster due to the short loan term. You can also achieve homeownership sooner.

However, this mortgage comes with high monthly payments. Make sure to assess your financial situation before you opt for a 15-year home loan. Once you do, get pre-approved with Houzeo!

Frequently Asked Questions

• mortgage terms