The 15 year fixed mortgage is a very good option for many home buyers. With the shorter payment period, the home buyer ends up paying much less in interest on the loan, which decreases the overall cost of the loan over time.
Additionally, with the larger monthly payments, the home buyer is able to build up equity in the home much faster, which is an important consideration. The obvious drawback to this option is the higher monthly payment to address both the principal and the interest in half the payment time of a 30-year mortgage.
When it comes to the interest rate for a 15-year mortgage, there are several factors to consider. Some of these are outside of the control of the home buyer, but there are several factors that can be addressed by the borrower. Keep in mind, the 15 year fixed rate loan has a lower interest rate than the 30 year fixed as there is less risk for the lender should the interest rates increase over the term of the loan.
One of the biggest drivers of the current interest rate for a 15-year mortgage is the economy. The Federal Reserve will set interest rates based on the overall performance of the economy, including investments and the market.
This is out of control of the home buyer, but the trends and market movement in the economy are easy to monitor and track. This allows the home buyer to strategically plan the time to purchase a home, taking advantage of a low rate that the Fed uses to stimulate the economy.
Individual credit scores will have an impact on the interest rate for any 15-year mortgage a buyer is quoted. Credit scores are used to qualify for a loan, but also to set the interest rate. The better the credit score, the better the rate the home buyer can expect on any term home loan.
Taking the time to improve your credit score, disputing any errors on reports and avoiding large purchases before applying for a home loan can all result in significant savings.
At Guaranteed Rate, we can work with a buyer to ensure they are offered the lowest interest rate for a 15 year mortgage.