What You Need to Know to Qualify For a 15-Year Mortgage

Would you like to pay your home mortgage off early?

What are the benefits to a 15-year mortgage? What are the disadvantages?

More and more people are looking into whether or not they can qualify and afford a 15-year mortgage. A 15-year mortgage could be your best friend or your worst enemy. Today, we are covering what you need to know when trying to qualify for a 15-year mortgage including the benefits and disadvantage.

Comparing 15-Year and 30-Year Mortgages

In an example by Get Rich Slowly, the difference between the two different types of fixed mortgages is made plain. If you wanted to take out a mortgage on a house that cost $160,000, the following would apply:

30-Year Mortgage

While currently mortgage rates are lower, let’s round up to a 5% interest rate. Your monthly payment for your $160,000 home would be $859, not including taxes or insurance. Paying the $859 over the course of your 30-year mortgage would come out to a total of $309,211. You will be paying $149,211 in interest overall.

15-Year Mortgage

If you chose instead to take out a 15-year mortgage, the average interest rate would be about 4.5%. The monthly payment would be $1,224, again not including taxes or insurance. Over the course of 15 years, the total mortgage payment would be $220,318. The interest paid drops to a total of $60,318.

The Big Differences

  • A 30-year mortgage will have a lower monthly payment.
  • A 15-year mortgage will have a lower overall cost.
  • It only takes 15 years to pay off a 15 year-mortgage.

Qualifying

As you can see, a 15-year mortgage will cost more per month over the span of 15 years. However, you will own your home at the end of that 15-year period and will have saved over $88,000 in interest.

While that may seem like the obvious choice, it might not be for some. A 15-year mortgage will require more money during the month. In addition to that according the SFGate.com, banks supplying a 15-year mortgage will require you to have only 28% of your monthly income in debt. That debt includes your mortgage, your credit cards, your student loans and more.

Mortgage Rates Making Headlines

Last week, CNN published that interest rates for mortgages have dropped. A 15-year fixed mortgage fell to 3.08% and a 30-year fixed fell to 3.92%.

Both types of fixed mortgages offer you a very low interest rate. If committing to a 15-year mortgage has you feeling apprehensive and overwhelmed, another option would be to take a 30-year fixed mortgage and pay more than the required monthly amount.

Time to Buy

There really has not been a better time to buy since the great recession. Fixed mortgages are going for a steal with interest rates below 4%.

If you would like to start your search, but are not sure if you can save the classic 20% down payment, you may like to check out our article, How Much Money Do You Really Need for a Down Payment? 

If you are ready to start looking for your dream house and take advantage of the current low mortgage interest rates, please give our office a call. We would be honored to help you find your next home.

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