Understanding 15-Year Mortgages And Current Rates

Emma Tomsich7-Minute Read
February 18, 2022

The home buying process can be overwhelming for many homeowners, and while choosing a house can be fun, choosing a mortgage is not always as enjoyable. We’re here to guide you through the process of buying a home and help you choose what mortgage is right for you. Let’s focus on the 15-year mortgage to better help you understand this type of home loan and its current rates.

What Is A 15-Year Mortgage?

A 15-year mortgage is a type of home loan where the interest rate and monthly principal and interest payments are fixed throughout the life of the loan. As the name suggests, 15-year fixed-rate mortgages charge a set rate of interest and monthly payments do not change over the 15-year term of the loan.

Fixed-rate mortgages are one of the most common mortgage types, but there are also adjustable-rate mortgages. Adjustable-rate mortgages (ARM)s differ from fixed-rate mortgages because their interest rates and monthly payments fluctuate over time on a variable basis. With adjustable-rate mortgages, the initial interest rate is typically set below the market rate on a comparable fixed-rate loan. Then, the rate will change as time goes on, sometimes surpassing the going rate for fixed-rate loans.

15-Year Mortgage Vs. 30-Year Mortgage

Now that you have a better understanding of 15-year mortgages, let’s compare this option to 30-year fixed-rate mortgages.

The two most popular loan terms are 15-year loans and 30-year loans. Like a 15-year mortgage, a 30-year mortgage is a home loan that also has fixed interest rates and fixed monthly payments. When deciding between these two types of mortgages, it’s important to compare the benefits and drawbacks of both while assessing your own financial situation and goals.

First, let’s compare the loan terms of both mortgages. As the names suggest, a 15-year home loan is paid over the course of 15 years, while a 30-year home loan is paid over 30 years. The timing involved with each mortgage can certainly have advantages and disadvantages for homeowners.

In terms of interest rates, a 15-year mortgage will typically have a lower interest rate than a 30-year mortgage because the loan terms are shorter, which means they are less risky and cheaper for banks to fund than loans with longer terms. Additionally, a 15-year mortgage tends to cost less than a 30-year mortgage because you’re paying less towards interest overall. The total interest you might pay could be half of what you would pay over 30 years because you’re borrowing the money for half as long.

On the other hand, 15-year mortgages tend to have higher monthly payments than 30-year mortgages because the home loan needs to be paid off in half the time. Higher monthly payments have the potential to limit the financial freedom of many homeowners. For example, higher payments may restrict homeowners to a more modest house than if they took out a 30-year loan with smaller payments over a longer term. Higher monthly payments also mean less money is available to save for retirement, family and any other future plans. But, homeowners are investing in their home and building equity, which can be beneficial for a strong financial future.

There’s a lot to consider when choosing between 15-year and 30-year mortgages. Some homeowners who take out a 30-year mortgage often refinance into a 15-year mortgage down the line. This can sometimes lower your interest payments while shortening your payback timeline.

But before you make any mortgage decisions, let’s look at current 15-year mortgage rates.

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Current 15-Year Mortgage Rates

This table displays current mortgage rates at time of writing comparing the name of the loan product, the interest rate and the annual percentage rate (APR). Use this table to look at current rates and compare your other options. Remember, mortgage rates can vary based on credit history, credit score, economic conditions and more. These rates are averages, so whatever rate you’re personally offered will depend on factors like your actual credit score, down payment amount, and debt-to-income ratio.

Loan Product

Interest Rate

APR

15-Year Fixed-Rate

3.125%

3.514%

15-Year Fixed Jumbo Rate

3.440%

3.480%

30-Year Fixed-Rate

3.875%

4.1%

30-Year Fixed Jumbo Rate

3.990%

4.050%

30-Year FHA Rate

3.25%

4.222%

30-Year VA Rate

3.375%

3.75%

ARM 5

2.955%

3.180%

ARM 7

3.112%

3.058%

15-Year Mortgage Calculator

To get a more accurate mortgage rate tailored to your own personal financial situation, you can use a mortgage calculator. Potential homeowners can use a mortgage calculator to determine their monthly mortgage payments with a 15-year mortgage and ultimately decide how much home they can afford. As previously mentioned, many factors go into this calculation including home price, down payment, loan term, interest rate and credit score. You can also have the payment include taxes and insurance to give you an even better understanding of your future mortgage. Calculate your future mortgage today using the Rocket Mortgage® mortgage calculator.

Pros And Cons Of A 15-Year Mortgage

When comparing the 15-year mortgage to the 30-year mortgage, we already highlighted some of the advantages and disadvantages of each. Now, let’s focus on the pros and cons of a 15-year mortgage to better help you decide which home loan will be right for you.

Pros

  • Interest rates are generally lower for 15-year mortgages. Compared to, for example, a 30-year mortgage, a 15-year loan term is much shorter, meaning it’s less risky and cheaper for banks to fund. You’ll save money on interest over the life of your loan.
  • Homeowners will make fewer mortgage payments. Homeowners will make fewer payments thanks to the shorter term.
  • Homeowners will pay off their mortgage faster. Fewer mortgage payments also mean that the loan will be paid off faster. So when neighbors are still paying off their 30-year mortgage, you’ll be able to focus your finances on other areas of your life.
  • Homeowners can build equity faster with a 15-year mortgage. Building home equity is an important part of being a homeowner and also a major advantage of a 15-year mortgage. Investing in your house can benefit you and your finances whether you plan to remain in your house indefinitely or sell it one day.

Cons

  • Monthly payments will be higher. As we know, the drawback of making fewer payments and paying your mortgage off faster is that mortgage payments will be higher. This can make it difficult for homeowners to keep up with their payments, especially if unexpected expenses come up.
  • Homeowners may only qualify for less-expensive properties. Additionally, a higher payment has the potential to restrict the buyer to a smaller or less expensive property than they would buy with a 30-year loan. To avoid this issue, try to calculate future expenses and determine how much money you will be approved to borrow with your loan. Consider getting preapproved before you start house shopping to better understand what you can afford.

Less money is available to invest. Finally, a higher monthly payment can also prevent money from going into savings. It’s important to consider what other financial goals you have before accepting a higher monthly payment.

15-Year Mortgage FAQs

If you’re still unsure about a 15-year mortgage, don’t worry. We’ll help you better determine whether it’s right for you with these frequently asked questions.

How are 15-year mortgage rates established?

Baseline mortgage rates are established by the market, not individual lenders. However, your lender will establish the final interest rate that you will pay. This final rate determined by your lender will be based off several factors, including credit score, credit history, home price and down payment.

Your credit score and credit history can give lenders a better idea of your financial health to determine if you’ll be a responsible or high-risk borrower. For example, homeowners with missed payments or a high utilization ratio may not qualify for the best interest rate.

Home prices and down payments can also indicate whether your home loan will be safe or risky. For example, if your home price is low and you pay a large down payment, your principal balance will be lessened and you won’t have to borrow as much money from a lender, making your loan less risky and potentially leading to a better interest rate.

What is a good rate for a 15-year mortgage?

As with all rates, 15-year mortgage rates are always changing. That being said, a good 15-year fixed rate is at or below the daily average. It typically hovers around 0.5% – 0.75% lower than its 30-year counterpart. Worth noting: Over the past 10 years, 15-year fixed-rate mortgages have averaged between 3.0% – 4.0%.

How do I qualify for a 15-year mortgage?

Many factors contribute to qualifying for a mortgage. As you embark on your home buying journey, pay attention to your credit history and credit score, and be mindful of your home price and down payment. These are all factors that will impact your ability to qualify for a mortgage. As you look at these factors and your own financial situation, continue building credit and raising your credit score, and shop around for homes within your price range that you know you’ll be able to afford.

Who is a 15-year mortgage best for?

If you have the means to make a higher mortgage payment over a shorter amount of time, you may benefit from a 15-year mortgage. When making this decision, be sure to compare the pros and cons of a 15-year mortgage, as stated above. At the end of the day, the home loan you choose should be one you can commit to and make payments toward without too much financial strain or stress.

Should I refinance to a 15-year mortgage?

Whether or not you refinance your 15-year mortgage depends on your current financial situation and future financial goals. You may consider refinancing if mortgage rates are dropping significantly, you plan to remain in your home for several years, and you still have a while to go before paying off your current mortgage. When thinking about refinancing, a good rule of thumb is that the cost of your refinancing should be offset by the savings you get by securing a new, lower interest rate.

The Bottom Line

A 15-year mortgage can be a great option for potential homeowners. This type of home loan offers lower interest rates, fewer monthly payments, a shorter loan term, and helps homeowners build equity. If you’re ready to take the next step in your home buying journey, apply for a mortgage with Rocket Mortgage today.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Emma Tomsich

Emma Tomsich is a student at Marquette University studying Corporate Communications, Marketing and Public Relations. She has a passion for writing, and hopes to one day own her own business. In her free time, Emma likes to travel, shop, run and drink coffee.