Current 15-year mortgage rates
As of November 17, 2020, the average 15-year fixed mortgage rate is 2.34%, and the 15-year fixed refinance rate is 2.56%. You can compare 15-year rates to what you'd pay on other terms below:
|Mortgage term||Average interest rate|
|15-year fixed refinance||2.56%|
|15-year fixed refinance||3.09%|
|10-year fixed refinance||2.57%|
Mortgage rates from the Federal Reserve Bank of St. Louis; refinance rates from Bankrate, current as of November 17, 2020.
15-year mortgage rates over the last decade
Here are the lowest 15-year fixed mortgage rates each year, from 2010 to 2019:
Today, 15-year rates are better than the lowest rates over the last decade. If your finances are strong enough to secure a low rate, it could be a good time to get a mortgage.
What is a 15-year fixed mortgage?
When you buy a home, you choose between two basic types of mortgages: a fixed-rate mortgage or an adjustable-rate mortgage.
A fixed-rate mortgage locks in your interest rate for the entire life of your loan. An adjustable-rate mortgage keeps your rate the same for the first few years, then changes it periodically, usually once per year.
When you choose a fixed mortgage, you select the term length. A 30-year is the most common term length for new mortgages, but most lenders offer 15-year terms, too.
A 15-year fixed mortgage keeps your rate the same for all 15 years, until you've completely paid off your mortgage. If mortgage rates in the US trend upward or downward during those 15 years, you won't be affected. Whereas if you had chosen an adjustable-rate mortgage, your rate would go up or down every year based on the economy.
Is a 15-year fixed mortgage a good deal?
A 15-year fixed mortgage is a good deal overall right now, but there are still things to consider.
In general, a fixed-rate mortgage is the better financial choice than an adjustable-rate mortgage. Mortgage rates are at all-time lows, so there's a good chance your adjustable rate would increase down the road. But you have the chance to lock in a super low rate for the entire life of your loan with a fixed-rate mortgage.
The 15-year rates are lower than 30-year rates, because you're signing up for a shorter term. That's the general rule: The shorter your fixed-rate term, the lower the rate. You'll also pay less in interest over the years with a shorter term, because you'll repay the mortgage sooner.
But your monthly payments will be higher with a 15-year mortgage than with a 30-year mortgage. You're paying off the same amount in half the time, so you'll pay more each month.
How to get a good 15-year fixed mortgage rate
Lenders take your finances into consideration when determining an interest rate. The better your financial situation is, the lower your rate will be.
Lenders look at three main factors: down payment, credit score, and debt-to-income ratio.
- Down payment: Depending on which type of mortgage you take out, a lender might require anywhere from 0% to 20% for a down payment. But the more you have for a down payment, the lower your rate will likely be. If you can provide more than the minimum, you could snag a better rate.
- Credit score: Many mortgages require at least a 620 credit score, and an FHA loan lets you get a mortgage with a 580 score. But if you can get your score above the minimum requirement, you'll probably land a better interest rate. To improve your score, try making payments on time, paying down debts, and letting your credit age.
- Debt-to-income ratio: Your DTI is the amount you pay toward debts each month in relation to your monthly income. Most lenders want to see a minimum DTI of 36%, but you can get a lower mortgage rate with a lower ratio. To decrease your DTI, you either need to pay down debts or consider ways to increase your income.
You should be able to get a low 15-year fixed rate with a sizeable down payment, excellent credit score, and low DTI.
Is a 15-year fixed mortgage a good fit for you?
You might like a 15-year fixed mortgage if you plan to stay in your home for a long time and want to be aggressive about paying off your mortgage.
If you plan to move in the next few years, you'll probably prefer a 30-year term instead, because monthly payments will be lower. But with a 15-year fixed mortgage, you can pay off the money in half the time and enjoy living mortgage-free 15 years sooner.
A 15-year fixed mortgage could be a good idea if you can comfortably afford higher mortgage payments. If making bigger payments would be a financial stretch, you may benefit from choosing a longer term so you'll pay less each month.
How to find personalized 15-year fixed rates
We're showing today's average mortgage rates, but you can find personalized rates based on your down payment amount, credit score, and debt-to-income ratio.
If you're a little further along in the homebuying process, then you can speak with multiple lenders to receive personalized rates to compare and contrast rates before choosing a lender.
The pros and cons of 15-year fixed mortgages
The pros of a 15-year fixed mortgage
- If mortgage rates increase, you keep your low rate. Unlike an adjustable-rate mortgage, a fixed mortgage locks in your rate for the entire life of your loan — which is especially useful right now, because rates are at historic lows. If you chose an ARM, then your rate would almost surely increase down the road.
- Predictable payments can make it easier to plan a budget. Granted, certain payments that are wrapped up in your mortgage could change over the life of your loan, such as private mortgage insurance or property taxes. But your interest rate will stay the same from year to year, which could make it easier for you to plan out your monthly expenses overall than if you chose an ARM.
- Shorter terms offer lower rates. Although 30-year fixed rates are low these days, you'll get an even lower rate with a 15-year fixed mortgage.
- You'll pay less in interest in the long term. A lower rate isn't the only reason you'll pay less with a 15-year term than with a longer term. Your interest has more time to accumulate with longer terms, so interest payments add up over time. Paying interest for a shorter amount of time works in your favor.
The cons of a 15-year fixed mortgage
- If mortgage rates decrease, you're stuck with the higher rate. Locking in your rate for 15 years means you don't benefit should rates go down later. But because rates are so low right now, it's unlikely rates will go down significantly in the near future. Still, it's possible rates would drop some time in the next 15 years.
- You'll make higher monthly payments. With a shorter fixed term, you pay off the mortgage in a shorter amount of time, so your monthly payments are higher. Higher payments could be a strain, and they might put you in a difficult position if your financial situation changes later.
What's the difference between a mortgage interest rate and APR?
When searching for rates, you'll probably see two percentages pop up: interest rate percentage and annual percentage rate (APR).
The interest rate is the rate the lender charges you for taking out a mortgage.
The APR takes the rest of your house payments into consideration, such as private mortgage insurance, homeowners insurance, and property taxes.
The APR gives you a better idea of how much you'll actually pay on your home.
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
Source: Read Full Article