What is a 15-year fixed mortgage?
In the mortgage industry, there are a variety of different loans that help match borrowers financial goals and circumstances during the home buying process. There are three important factors that define a 15-year fixed mortgage: the length, rate structure, and type. These mortgages are scheduled to be paid off within fifteen years, half of the time that many borrowers opt for. Additionally, the rate structure is fixed. This means that you will be paying the same interest rate for the duration of the loan – you won’t have to worry about any surprises down the road. Lastly, fifteen-year fixed mortgages are conventional mortgages. This means that the loan is either guaranteed by a private lender or through one of the two government-sponsored enterprises, Fannie Mae or Freddie Mac.
What this means for you.
Since the borrower is paying off the loan in only a fifteen year time period, the monthly payments are going to be higher in this loan option. However, the 15-year fixed mortgage includes a significantly less amount of your monthly payments contributed to interest – rather you are putting more of your payments towards the principal, or equity, in the home. Since you build equity faster, this can be viewed as a way for “forced” savings as you are sacrificing higher monthly payments in return for investing in your house which will appreciate in value over the long run.