Interest rates right now are at an all-time low. For the month of July, 2020, Freddie Mac reported the average commitment rate for a 15-year mortgage at 2.52%. If you have an exceptional credit score and a sizable down payment, your rate could go even lower.
A lower interest rate means a lower monthly payment. If you're buying a home, a lower monthly payment means you can afford more house. If you're considering refinancing, right now is a great time to take advantage of lower rates and save money over the life of the loan.
A 15-year fixed-rate mortgage has a loan term of 15 years. Over the course of paying back the loan, the interest rate is "fixed," meaning that it stays the same from Day 1.
Unlike a 30-year fixed-rate mortgage, a 15-year option has a lower interest rate, but a higher monthly payment. This is because you're paying off your mortgage in half the time.
Types Of 15-Year Mortgages
Both the Federal Housing Administration (FHA) and Veteran's Administration (VA) offer 15-year mortgages. FHA loans have lower credit score and down payment requirements but come with higher interest rates, and you have to meet certain income requirements. FHA loans are geared toward lower income households and first-time home buyers.
VA loans are like FHA loans in that they offer the opportunity to buy a home with lower down payment (no down payment for VA loans) and credit scores. They are available to current and former military members and qualifying spouses who meet the requirements of service time.
Current 15-Year Mortgage Rates
Want to view the most up-to-date information on current 15-year mortgage rates? Visit the Quicken Loans Mortgage Rates page.
This page lays out the daily information on 15-year fixed mortgages in comparison with other mortgage types. View mortgage rate trends over the past year to determine the best time to apply or refinance.
Historical 15-Year Mortgage Rates
The 15-year mortgage was first introduced in 1991. When the 15-year fixed-rate mortgage came on the market, its rate was set at 8.79%, according to Freddie Mac. It peaked at its highest rate in January 1995, with a rate of 8.80%. Throughout the rest of the 1990s, the 15-year fixed mortgage rate fluctuated between 6.36% and 7.4%.
For the early 2000s, 15-year rates trended downward from an average of 7.72% in 2000, to an average of 5.17% in 2003. This drop of more than 2.5% in three years is largely due to the recession that happened in 2001. Rates averaged between 5% and 6% until 2008, when the sub-prime mortgage crisis occurred, and the economy dropped out.
In response to the Great Recession, the Federal Reserve dropped interest rates even lower. Rates bottomed-out in late 2012 at 2.66% and crept up to 4.0% in 2018. Due to COVID-19 in 2020, the Federal Reserve slashed interest rates, resulting in historic low interest rates for 15-year mortgages, lower than 2.6%.
Pros Of A 15-Year Mortgage
There are many pros of a 15-year fixed-rate loan that make it attractive to certain home buyers. If a buyer's goal is to build equity, pay off the mortgage over a shorter term and pay less interest, a 15-year mortgage is a great option.
Since paying less interest is a big draw to a 15-year mortgage, let's run the numbers. Say your loan amount is $200,000, at a rate of 3.0%. This means you will pay $48,609 over the life of the loan.
Compare this to a 30-year fixed rate mortgage, with an interest rate over the past 5 years that has averaged 0.65% higher than its 15-year counterpart. $200,000 at 3.65% over 30 years means you'll pay $129,371 in interest. That's $80,762 more you've paid to interest that you could have spent elsewhere or saved for retirement.
Want to run the numbers yourself? Use the Rocket Mortgage® mortgage calculator.
Many people consider their home to be a big and safe investment. If you're interested in owning your home outright and doing it faster than what a 30-year mortgage will allow, a 15-year loan could be the right option for you.
Cons Of A 15-Year Mortgage
The biggest drawback for people when it comes to a 15-year loan is the higher monthly payment. Even with a lower interest rate, a 15-year mortgage requires higher payments. You’re paying your house off in half the time of a 30-year loan, so of course your payments will be higher.
But how much higher are we talking? Let's return to our example from above. The 30-year $200,000 mortgage has a monthly payment of $915, where the 15-year mortgage has a monthly payment of $1,381. That's $466 more to your mortgage payment every month. Not everyone has that much wiggle room every month.
For the sake of the example, let's say you could save that $466 a month. You decide to put it in an investment account with an average 6% return. You do this every month for 30 years. Given a steady return of 6%, you’ll have a balance of over $442,000. You can run the numbers yourself using an investment calculator.
While your home has historically been a safe investment, investing elsewhere while slowly paying off your mortgage may be smarter. It all depends on your financial goals.
How Often Do 15-Year Mortgage Rates Change?
Mortgage rates fluctuate daily during the 5-day workweek. They can steadily hold from month to month or can shift due to market changes and economic concerns. In the past 20 years, the moments we've seen with the largest shifts in mortgage rates have to do with recessions. Historically, greater economic uncertainty means lower mortgage rates.
Should I Refinance To A 15-Year Mortgage?
Whether you should refinance to a 15-year mortgage depends on timing, your budget and your goals. We already broke down how a 15-year mortgage differs from a 30-year mortgage, but refinancing adds a whole other layer.
If you want to refinance to pay your mortgage off sooner, you need to time it right.
When To Refinance
If rates are dropping, you're planning on staying in your home for a while and you're not close to paying off your current mortgage, consider refinancing. The cost of refinancing needs to be balanced out by the savings you'll receive with a lower interest rate.
If the market has shifted and rates are low enough, refinancing to a 15-year mortgage may not change your monthly payment. This can help you save big on interest, without putting a burden on your monthly expenses.
It should be noted too that, if you have an adjustable rate mortgage, it's smart to refinance to a lower fixed-rate before your rate adjusts up.
When Not To Refinance
There are several reasons to avoid refinancing to a 15-year fixed-rate mortgage. Ideally you want to see an interest rate drop of around 2% from your current mortgage rate. You should hold off on refinancing if interest rates are going up.
You should also hold off on refinancing if you aren't planning on staying in the home long enough to recoup the costs of the refinance. Refinancing comes with closing costs like home inspections, home appraisals and application fees.
What Is A Good 15-Year Fixed Mortgage Rate?
While rates are always changing, there are a few key factors that distinguish a good 15-year interest rate from a not-as-good one. Remember that daily rates posted are averages and what rate you're offered depends on factors like your credit score and debt-to-income ratio.
A good 15-year fixed rate is at or below the daily average. It typically is 0.5% – 0.75% lower than its 30-year counterpart. In the past 10 years, 15-year fixed-rate mortgages have averaged 3.0 – 4.0%.
Are 15-Year Fixed Mortgage Rates Lower Than 30-Year Mortgage Rates?
Yes, 15-year fixed mortgage rates are lower than 30-year mortgage rates. Since 1991, the 15-year fixed rate mortgage has been 0.5% – 0.75% less than the 30-year fixed-rate mortgage.
The reason banks offer lower rates on the shorter-term home loans is because they are less risky than longer term loans. A 30-year loan also cost banks more in administration and processing fees. They pass these extra costs onto the lender in the form of a higher interest rate.
Differences Between 15-Year And 30-Year Fixed Mortgages
The distinct differences between 15-year and 30-year fixed-rate mortgages are the interest rates, monthly payment and length of the loan. Note that 15-year mortgages have lower mortgage interest rates and you pay less total interest, while 30-year fixed-rate mortgages have lower mortgage payments, but with a higher total interest payment.
A 15-year mortgage means you'll build home equity faster, but the lower monthly mortgage payment of a 30-year mortgage makes it easier for those on a tighter budget. This is especially true if you must pay mortgage insurance on top of your monthly payment.
Other Mortgage Loan Types To Choose From
Besides conventional 15-year and 30-year fixed-rate mortgages, there are other loan types to choose from when buying a new home or refinancing.
- Adjustable rate mortgages – Adjustable rate mortgages come in 30-year terms. The major forms of these mortgage types are 5/1, 7/1 and 10/1. For each of these, the loan starts with a low rate for the first 5, 7 or 10 years, then adjusts once a year for the remainder of the loan. These types of mortgages are great if you don't plan on staying in the home long-term.
- Jumbo mortgages – Jumbo loans are typically 30-year loans for expensive properties. Conventional loans have limits on how much you can borrow depending on the average property value where you're buying. A jumbo loan is an option if the property you're buying exceeds this limit. Since it's a higher loan amount and a higher risk for the bank, jumbo loans come with higher interest rates.
- Cash-Out refinance – A cash-out refinance is a type of mortgage refinance in which you can turn the home equity you have into cash. You then take on a new mortgage for the rest of what you owe.
The Bottom Line
There are pros and cons to a 15-year mortgage. You'll pay lower total interest and build home equity quicker than 30-year mortgage, but your monthly payment will be higher, making cash tighter.
Refinancing from a 30-year mortgage to a 15-year mortgage with a much lower rate could be an option that may not drastically change your mortgage payment. Use a mortgage calculator to see if the numbers make sense.
If you’re staying in your home long-term and want to pay it off as soon as possible, paying as little toward interest as you can, a 15-year mortgage may be right for you.
Read more about mortgages, refinancing and home buying at the Rocket Mortgage® Learning Center.
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