The most common type of mortgage loans are fixed-rate mortgages1 for 15-year and 30-year periods.
30-Year Fixed Rate
The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then an adjustable-rate loan may be a better option.
- Offers the chance to borrow money on a long-term basis without having to worry about the interest rates or payments changing.
- Monthly payments are lower than those on 15-year loans because the interest is amortized over a longer period.
- Lower monthly payments free up money that borrowers can pour into investments that could potentially yield more than their homes.
- Higher interest payment increases the amount consumers can deduct at tax time, potentially reducing their federal income tax liabilities.2
- Borrowers build equity at a very slow pace because payments during the first several years go largely toward interest rather than principal.
- The overall interest payment is higher because of the long amortization term.
- The interest rates are higher than on 15-year loans.
15-Year Fixed Rate
This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you’ll pay off your loan twice as fast. However, the disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years.
Borrowers build equity much more quickly due to shorter amortization schedules.
Overall interest payments are dramatically lower than those on longer-term loans.
The interest rates are lower than 30-year loans.
- Monthly payments can be higher than those on 30-year loans.
- Payments will be higher than a 30-year fixed rate.