This question has been asked a thousand times and it will be asked a thousand more times; which is better a 30 year fixed rate mortgage or a 15 year fixed rate mortgage? Well there are no easier answers because for a some a 30 year fixed rate is better and for others a 15 year fixed rate mortgage is better. What I am saying is that everyone is different, everyones situation is different and everyone has different financial goals when it comes to real estate to blank answer of "this is better" doesn't work. What we can do is understand what the 30 year vs. the 15 year fixed rate means and then from there, pick which is better for your specific situation. The two most popular terms in the mortgage industry are the 30 year fixed rate and the 15 year fixed rate term.
30 Year Fixed Mortgage Rate Term:
A 30 year fixed rate mortgage is a loan that last for 30 years and has 360 payments (made each month). Since the term is "fixed" that means the interest rate and payment never change during the life of the loan. Most conventional and FHA 30 year fixed rate terms do not come with pre-payment penalties nor do they usually come with a balloon payment. You'll definitely want to confirm this with your Loan Officer. 30 year fixed rate terms can come with discount points and/or ordination points.
The benefits of a 30 year fixed rate term is that your interest rate is fixed, your payment stays the same and your payment is lower than if you had a shorter term (like a 20 or a 15 year fixed rate). The downside is that your loan will take twice as long to payoff and your interest rate is higher (when compared to a 15 year fixed rate term).
15 Year Fixed Mortgage Rate Term:
Take the info from the 30 year fixed explanation and substitute "15". The two fixed rate terms are almost exactly the same; fixed interest rate and payments so they never change. The benefit of obtaining a 15 year fixed term is that you will pay off your home in half the time and your interest rate will be lower on a 15 year fixed when compared to 30 year fixed rate options. The downside is that your payment is significantly higher than if you had a 30 year fixed rate mortgage.
Average Fixed Rates:
Most industry professionals know that fixed rate mortgages are more popular than adjustable rate mortgage (aka ARMs). For the most part 30 year fixed rates in 2019 averaged below 4.375% and during the summer of 2019 they briefly hit the mid 3% range as Mortgage Backed Securities rallied. 15 year fixed rates average below 4.00% and during the summertime lows moved down to the low 3% range. The big question is what will mortgage rates average in 2020? That remains to be seen but most mortgage industry professionals are optimistic that 2020 will be a good year for mortgage rates.
Which One Is Better:
So let's keep this simple; if you are trying to payoff your home faster and have the ability to pay a higher mortgage payment then go with the 15 year fixed rate term. If you are trying to keep your monthly expenses down so you can put your money to work in other investments than the 30 year fixed rate term is for you.
