When you’re shopping for a mortgage, you’ll likely see two of the most common repayment terms — 30 years and 15 years — no matter which lender you shop with. Each term has its benefits and drawbacks, and the better option depends on your unique situation. Here’s a look at the pros and cons of 15-year mortgages, how to qualify for one and what mortgage rates you might expect.
Pros and cons of a 15-year mortgage
A 15-year mortgage can be a great option if you want to save money on interest and can afford higher monthly payments. But before taking out a 15-year home loan, consider the pros and cons of choosing this term.
| PROS | CONS |
|---|---|
Interest savings over loan term | Higher monthly payments |
Build equity faster | Less money available for other goals |
Lower interest rates | Can be more difficult qualifying for a larger loan payment |
15-year fixed-rate mortgage vs. ARM
Home loans may come with a fixed rate or an adjustable rate. A fixed rate won’t change throughout the life of the loan, even if market rates rise or fall. That means your monthly principal-and-interest payments won’t change either, which can be helpful for budgeting purposes.
With an adjustable-rate mortgage (ARM), your interest rate is fixed rate for a certain number of years and then fluctuates at regular intervals. A 15-year ARM is less common, so you’ll likely see the adjustable-rate option when taking out a 30-year mortgage. The frequency at which your rate changes depends on the loan you choose, but it’s common to see 5/1, 7/1, 10/1, 5/6, 7/6 and 10/6 ARMs.
The top number indicates the fixed period, while the bottom number shows how often the rate can change. With a 5/1 ARM, for instance, your rate remains fixed for five years, then fluctuates once a year through the rest of the loan term. And with a 5/6 ARM, your rate will be fixed for five years and then will change every six months.
ARMs typically come with rate caps, so your rate can only increase by so many percentage points even if market rates skyrocket. In general, an ARM can make sense if you plan to stay in your home for a short time, or you’re willing to risk potentially higher rates for possible rate decreases in the future.
| ADJUSTABLE-RATE MORTGAGE (ARM) | FIXED-RATE MORTGAGE | |
|---|---|---|
Interest rate can change | Yes | No |
Initial interest rate is usually lower | Yes | No |
Comes with a rate cap | Yes | No |
Widely available on 15-year home loans | No | Yes |
Best if… | You only plan to stay in your home for a short period You’re willing to risk rate increases | You’re looking for predictable monthly payments You think rates will increase in the near future |
How to qualify for a 15-year mortgage
Lenders consider several factors when evaluating prospective borrowers. In general, you’ll need to meet the following criteria to qualify for a conventional mortgage loan.
- Credit score: You’ll typically need a credit score of at least 620 when you apply for a conventional home loan, though a higher credit score might be necessary in some cases. Loans backed by the Federal Housing Administration (FHA), U.S. Department of Agriculture (USDA) and Department of Veterans Affairs (VA) often have looser qualifying criteria because they pose less risk for lenders.
- DTI ratio: Your debt-to-income (DTI) ratio shows the amount of debt you carry relative to your monthly income. Most lenders prefer a DTI below 36%, though some will accept a DTI of up to 50%.
- Down payment: Some lenders may allow for a down payment as low as 3% of the loan amount, but you may need a down payment as high as 20% in some cases. Requirements vary by lender and loan type.
- Employment: Lenders often check two years’ worth of employment history when you apply for a mortgage.
Qualification requirements can vary with each lender and the loan you want to take out. Before you apply for a mortgage, you can research lenders and ask about their requirements to determine your approval odds. Consider doing a preapproval, which can help you check how much you can borrow.
Comparing current 15-year mortgage rates
Your mortgage is likely the largest loan you’ll ever take out, so it’s wise to compare rates before applying. Even a slightly lower rate could help you pay much less in interest costs over the life of your 15-year term.
For instance, if you’re approved for a $350,000 home loan with a 15-year term, a 7% interest rate and a 3% down payment, you’d pay $209,845 in interest over your loan term. But the same loan with a 6.75% rate would cost just $201,303 in interest.
While your rate depends on many factors (including location), here’s a look at current 15-year mortgage rates from some well-known lenders, as of May 2024.
| LENDER | INTEREST RATE |
|---|---|
Ally | 6.875% |
Bank of America | 6.375% |
Better.com | 6.375% |
Chase | 5.875% |
Navy Federal Credit Union | 5.750% |
New American Funding | 5.750% |
PNC | 6.375% |
SoFi | 5.625% |
Wells Fargo | 5.500% |
How to find the best rate and lender
Finding the best mortgage lender and the lowest interest rate comes down to doing some prep work. Take the following steps to find the best deal when you get a home loan:
- Check your finances. Pull your credit reports and look for any reporting errors that are dragging your credit score down. Also check your credit score, which will directly impact the rate you receive. The best rates are usually reserved for borrowers with excellent credit.
- Research several lenders. Create a list of prospective lenders you may want to borrow from. These could be traditional banks, credit unions or online lenders.
- Compare rates and terms. Lenders often list available mortgage rates and terms on their websites. Using a mortgage calculator, you can estimate your monthly payment based on the potential loan size, down payment and interest rate.
- Get pre-qualified. Once you’ve narrowed your list of lenders, check whether they offer a pre-qualification tool on their websites. Pre-qualifying involves providing some basic personal and financial information to get insight into potential rates and loan amounts.
- Apply for the loan. After you’ve found a lender and a home loan that works for you, you’ll need to formally apply for the mortgage. Expect to provide in-depth personal and financial information as part of the application process.
Frequently asked questions (FAQs)
As of June 11, 2024, the average interest rate for a 15-year mortgage is 6.60%. But rates vary by lender, so it’s important to shop around and compare loans.
While 15-year mortgage rates are currently high, they will likely decrease at some point. The National Association of Realtors predicts rates may decline through fall and winter of 2024 if the federal funds rate stabilizes.
Your interest rate is the percentage your bank charges you to borrow money. Your APR includes both the interest rate and the fees you’ll pay for your mortgage loan, such as broker fees and points. Both rates are expressed as a percentage, so you can use them to compare multiple loan options.
Whether a 15-year is better than a 30-year mortgage depends on your situation. A longer term comes with a lower payment, but you’ll pay more in interest costs over time.
“So when it comes to a 15-year mortgage, the question that most people need to answer is: ‘Am I comfortable with this higher monthly payment?’ and ‘Is paying the home off more quickly a priority for me versus using that monthly cash for other purposes?’” says Jon Bodan, a strategic financing adviser at Real Estate Bees.
“There’s no right or wrong answer here,” Bodan adds. “But if you have other savings and are contributing to your retirement, then doing a shorter-term mortgage can be another good way to build net worth and wealth.”
Interest rates on 15-year mortgages are often slightly lower compared to 30-year home loans. Because repayment terms are shorter with 15-year mortgages, lenders take on less risk. Thus, the rates borrowers receive for shorter-term mortgages tend to be lower.
