30-Year Fixed Vs. 15-Year Fixed

The 30-year fixed vs. 15-year fixed mortgage debate has been going on for decades!

Every homeowner wants a low mortgage payment and every homeowner wants to pay off their mortgage as fast as they can however combining the two, to get the full benefit of both options, is not possible. A 30-year fixed vs. 15-year fixed mortgage – which is better? 

It all depends on what’s most important to you.

What Is A Fixed Mortgage Rate?

A fixed rate mortgage means the rate you lock in will never change during the life of the loan. The two most popular fixed rate mortgages are;

  • 30-year fixed-rate mortgage
  • 15-year fixed-rate mortgage

The great thing about a fixed-rate mortgage is that your interest rate and your monthly payment never change.

30-Year Fixed vs. 15-Year Fixed

Let’s go over the details of a 30-year fixed vs. 15-year fixed mortgage. We’ll look at the benefits of the 30-year fixed rate mortgage and the benefits of a 15-year fixed rate mortgage.

We’ll also cover what First-Time Homebuyers should look for and a comparison between Conventional and FHA mortgages.

30-Year Fixed-Rate Mortgage:

There are 360 monthly payments with a 30-year fixed-rate mortgage and your interest rate/payment will never change. This is bar far the most popular mortgage program for both refinances and purchases. The benefits of a 30-year fixed mortgage rate is the flexibility it allows the homeowner in case something comes up.

Whether it’s a job loss, an unexpected medical expense or even planned expense like a wedding; a 30-year fixed allows the homeowner to be better prepared for these sorts of expenses. Also the tax benefit is a bit greater (for some and this could change) than a 15-year fixed and lasts longer since you are paying more interest on a 30-year fixed mortgage.

Here Are The Important Benefits Of A 30-Year Fixed-Rate Mortgage:

  • Lower payment.
  • Great flexibility with planned and unplanned expenses.
  • Longer tax benefit (confirm with your CPA as to what your tax benefit might be.
  • The difference in payment between a 30 year fixed and a 15 year fixed can be put to work somewhere else. Retirement, another property, college fund etc.

Qualifying For A 30-Year Fixed-Rate Mortgage:

The qualifications for a 30-year fixed-rate mortgage are fairly basic. Ideally, you’ll want your Debt-To-Income ratio below 45% and at least 3% down (or 3% equity). 

You’ll need to be employed, retired or if you are self-employed, you’ll need at least two years of tax returns to show self-employment income.

Since your payment is lower on a 30-year fixed-rate mortgage it’s easier to qualify then a 15-year.

15-Year Fixed-Rate Mortgage:

If you chose a 15-year fixed-rate mortgage you’ll be paying a monthly payment for 180 months. Like the 30-year fixed-rate option your interest rate and payment will never change. The main benefit of a 15-year fixed mortgage rates is the ability to pay off your home in half the time (compared to a 30-year fixed). 

You’ll be able to build equity much faster with a 15-year fixed-rate mortgage, you’ll have a lower interest rate and you’ll pay less interest to the lender (compared to a 30-year fixed mortgage)

Here Are The Important Benefits Of A 15-Year Fixed-Rate Mortgage:

  • You’ll pay off your house much faster.
  • Lower interest rate means less interest you’ll pay to the bank.
  • Larger upfront yearly tax benefit since you’ll be paying a higher payment (check with your CPA). Over time though this dwindles as more of your payment goes to principal.
  • Once your loan is paid off in 15 years you can put that money to work somewhere else while someone on a 30-year fixed will be paying for another 15 years.

Qualifying For A 15-Year Fixed-Rate Mortgage:

The qualifications for a 15-year fixed-rate mortgage are similar to that of a 30-year fixed-rate mortgage. Ideally you’ll want your Debt-To-Income ratio below 45%.

It’s more difficult to qualify for a 15-year fixed rate mortgage because your mortgage payment is almost double that of a 30-year fixed-rate mortgage payment.

An Alternative To The 30 and 15-Year Fixed-Rate Mortgage:

Let’s say you want to pay your mortgage off faster but can’t afford the 15-year fixed-rate mortgage. Well, there’s an alternative and that’s the 20-year fixed-rate mortgage.

For the most part, it’s structured the same way; your rate and payment stay the same during the entire life of the loan.

Your mortgage rate will be lower than a 30-year fixed-rate but higher than the 15-year fixed. Your payment will be higher than the 30-year fixed-rate option but lower than the 15-year fixed.

Your payment includes both interest and principal so each month you’ll be paying down your mortgage balance.

Conventional And FHA Home Loans

Both Conventional and FHA loan programs offer a 30-year fixed-rate mortgage and a 15-year fixed-rate mortgage. Most First Time Home Buyers have the 30-year fixed vs. 15-year fixed debate but ultimately a majority of them chose the 30-year fixed. Experienced homeowners are more open to the 15-year fixed loan program, especially after they’ve owned a home for more than ten years.

When it comes to the FHA loan program; most people chose a 30 year fixed rate. FHA 15 year fixed rate mortgages are not as aggressive as the 30 year fixed rate mortgages and they still come with Mortgage Insurance.

30-year fixed vs. 15-year fixed

30-Year vs. 15-Year Online Comparisons

There are many online resources you can check for a 30-year fixed vs. 15-year fixed mortgage comparison. Here are some interesting online comparisons.

Investopedia: If you want an in-depth review of the differences between a 30-year and a 15-year fixed-rate mortgage then you should visit Investopedia. They offer great insight into the ins-and-outs of the 30 and 15-year fixed-rate mortgages.

Motley Fool: Another great website to review would be the Motley Fool. They offer a good pros and cons review of both the 30-year and 15-year fixed-rate mortgages.

Market Considerations

Sometimes you have to look at the current market to make a decision between the two. What do I mean by that? I’m referring to the spread between a 30-year fixed-rate mortgage and a 15-year fixed-rate mortgage.

Generally speaking the difference usually is about a 0.50% (keeping fees/costs the same). But let’s say the market the spread is much larger; something like 0.75% – 1.00%.

If you were borderline in deciding on a 30-year fixed and the market spread with a 15-year fixed all of a sudden became as wide as 1% you may want to re-evaluate your decision. The reason is the market is saying long-term fixed rates are not very attractive and short-term (15 years) are a better value.

On the flip side; if you decided on a 15-year fixed and the rate was only .25% better than a 30 year fixed then you may want to reconsider your decision to go with a 15-year fixed. The reason?

The market is telling you that short-term rates are expensive compared to long-term rates and ultimately it might be more cost-effective to go with a 30-year fixed-rate and simply pay extra towards the principal.

Which is more important to you?

  • A lower payment and better monthly cash flow
  • Reducing your debt and paying your home off faster

Once that question is answered it’s then on to setting up the best course of action when refinancing or purchasing a home.

This is the debate many homeowners have and deciding which is more important is something all homeowners have to do. Below you’ll find the benefits of both loan options, additional information for first-time homebuyers, and obtaining the lowest mortgage rate.

First-Time Homebuyers

Based on my experience, first-time homebuyers want to know all about the 30-year fixed vs. 15-year fixed debate homeowners have.

Here is my suggestion for first-time homebuyers;

Since you’ve never owned a home you probably don’t fully understand the cost of maintaining a home and/or remodeling a home. Everything from brooms to sweep the floor to calling a plumber to fix a leak; these are expenses you need to be prepared for since their no longer is a landlord to call. 

So on your first home purchase I always suggest you strongly consider a 30-year fixed rate mortgage.

Which Should You Chose?

Deciding between a 30-year fixed vs. 15-year fixed is a difficult task however it’s always best to make sure that the mortgage payment is no too much of a strain on the monthly budget.

I suggest to clients to pick the term that best suits their lifestyle in terms of how they spend the money they earn and their medium to long term financial goals. People are different and what’s good for one person/family may not be good for another. 

We’re happy to discuss in further detail the benefits and drawbacks to both the 30-year fixed mortgage and the 15-year fixed mortgage if needed.

Our Lowest Mortgage Rates:

Day in and day out we work hard to bring the lowest mortgage rate to our clients. 

30-year fixed vs. 15-year fixed mortgage rate – we understand no two clients are the same so we want to provide the lowest rate possible for both loan terms. We understand that it’s extremely important to our clients as every penny counts. So what do we do that other mortgage companies don’t?

First – We know What Impacts Mortgage Rates:

We track the Mortgage-Backed Securities market so we can inform our clients as to what is going on with mortgage rates and then we implement a strategy for locking (if the client wants to wait and lock). 

Most Loan Officers will tell you the 10y Treasury sets mortgage rates or maybe they’ll say the Fed sets mortgage rates which is completely wrong. . In fact if a Loan Officer tells you the 10y Treasury sets mortgage rates I’d suggest your find a new Loan Officer.

What sets mortgage rates? 

It’s a combination of things. First, mortgage rates originate in the Mortgage-Backed Securities market. Then lenders need to factor in operational costs and volume needs. The next thing is the transaction itself, is it a purchase or a refinance.

Then there various “Loan Level Price Adjusters” that need to be accounted for as well. Once all this is put together you have your consumer mortgage rate. 

Second – We Use The Latest Technology To Bring Down Costs:

We’ve implemented the latest technology to help keep our costs down. From being able to apply online to uploading docs to signing disclosures digitally; we’ve embraced the latest technology to not only lower our costs but add greater efficiency to the loan process.

Third – We Keep Things Simple:

Most mortgage companies have loan processors – we don’t!

In fact we not only don’t have loan processors, we don’t have secretaries nor do we have regional managers. So our cost structure is MUCH lower than most mortgage companies.

And from beginning to end you’ll work with one person; not 3 or 4 different people. That provides a more efficient process and less expensive process. You’ll always know who to call or email should you have a question.

I hope this 30-year vs. 15-fixed mortgage article has been helpful. If you have any questions and/or if you would like a quote on one of our loan programs please be sure to ask.

Loan Officer Kevin O'Connor

About The Author

Loan Officer Kevin O'Connor has over 16 years of experience as a Mortgage Loan Originator and is licensed with the state of California and the Nationwide Mortgage Licensing System. He has a top rating with the Better Business Bureau, Google, Yelp, and Zillow. CA DRE #01499872 / NMLS #247447

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