Your guide to 15-year fixed mortgages
Quick insights
- A 15-year fixed mortgage is paid off over 15 years with an interest rate that stays the same from day one to the final payment.
- 15-year mortgages usually have higher monthly payments than their 30-year counterparts, but you should pay less in interest and build equity faster.
- Because the monthly payments are higher, it can be more difficult to qualify for a 15-year mortgage versus a 30-year home loan.
15-year fixed mortgages are called “15-year” mortgages because that’s the length of the loan repayment term. They’re often compared to 30-year mortgages, which have a term of 30 years. Together, they’re the most common home loan terms. Let’s take a closer look at how 15-year fixed mortgages work and the potential benefits and risks that come with the shorter term.
What is a 15-year fixed mortgage?
A 15-year fixed mortgage is a home loan with a fixed interest rate and a 15-year repayment term. In short, this means the interest rate and monthly payment will not change over the life of the loan. If you make your monthly payments in full and on time, the loan will be paid off in 15 years.
The name describes both the loan term and how the interest rate will work. Fixed-rate mortgages are sometimes compared to adjustable-rate mortgages (ARMs) because those are the two different ways interest rates can be calculated on a mortgage.
How does a 15-year fixed-rate mortgage work?
With a fixed-rate mortgage, the interest rate will stay the same over the life of the loan, regardless of what happens to mortgage rates or the markets overall. Each monthly payment that you make will apply to principal and interest, with more going toward the principal over the life of the loan.
Because the loan term on a 15-year mortgage is shorter, your monthly payment will be higher than it would be with a 30-year loan. However, interest rates are usually lower. So, with the shorter loan term, you should pay less in interest and build equity in the property faster.
15-year fixed mortgage requirements
The basic requirements to qualify for a 15-year mortgage are similar to those for a 30-year mortgage. Your lender will review factors like:
- Credit score
- Debt-to-income ratio (DTI)
- Down payment
- Income history
- Closing costs
The lender may also ask for additional documentation, like bank statements or tax returns. The exact thresholds for these requirements will vary based on the lender you choose and the type of loan. However, the same general underwriting guidelines will apply.
Pros and cons of a 15-year fixed mortgage
Whether or not a 15-year mortgage is right for you will come down to your specific financial circumstances and goals. That said, we’ve compiled a general list of potential pros and cons to help you decide if this is a loan option you may be interested in pursuing.
Pros
- Save on interest: Interest rates on 15-year mortgages can be lower than those on 30-year mortgages. This could save money across any stretch of the loan. Plus, you pay the loan off faster, so interest has less time to add up. More of each monthly mortgage payment goes toward the principal balance.
- Build equity faster: With a 15-year mortgage, more of each monthly payment will go toward your loan balance instead of interest. Because the repayment timeline is shorter, equity builds faster compared to a 30-year loan. This can be helpful if you plan to refinance later, sell your home or tap into your equity for future financial goals.
- Pay off loan sooner: A 15-year mortgage allows you to own your home outright in half the time of a traditional 30-year loan. This assumes you make loan payments on schedule. Becoming mortgage-free sooner can free up cash for other priorities, such as saving or investing.
Cons
- Higher monthly payments: Shorter loan terms generally come with higher monthly payments. Try out our mortgage calculator to see how much the loan term can affect your payment. The difference can be considerable.
- Harder to qualify: Because of the higher monthly payment, some borrowers may find it more difficult to qualify. The payments could raise your DTI ratio above a lender’s acceptable threshold.
- Could affect house budget: If you’re struggling to qualify for a 15-year mortgage because of the impact on your DTI ratio, you may need to lower your potential purchase price, depending on how much you need to borrow.
How to apply for a 15-year fixed mortgage
If you’re interested in applying for a 15-year fixed mortgage, here are some recommended next steps.
1. Research loan types
There are different types of 15-year fixed-rate mortgages you can apply for. Here are some of the most common:
- Conventional loans
- U.S. Department of Veterans Affairs (VA) loans
- Federal Housing Administration (FHA) loans
- U.S. Department of Agriculture (USDA) loans (Chase does not offer USDA loans at this time.)
Before moving forward in the process, it makes sense to decide which of these loan options you’re interested in pursuing. You can also come back to this step after you talk with lenders to get a better sense of your options.
2. Shop lenders
Choosing a lender can be as important as deciding on the type of mortgage and property you’re interested in purchasing. Ideally, they’ll be a strategic partner who can help you get the loan to purchase the home while offering strategic counseling throughout the process.
Shopping lenders also allows you to find out if they have any promotional offers that might be beneficial—for example, putting cash toward closing on your behalf.
3. Get preapproved
Getting preapproved will allow the lender to start diving into your financial information and can give you a better idea of how much house you can afford. Preapproval can also make your offer more appealing to sellers, as it shows you’re a serious prospective buyer who’s been vetted by a lender.
Additionally, getting preapproved can give you peace of mind that your application has a good chance of being approved once you find the right property.
4. Find the property and make an offer
To formally apply for a 15-year fixed mortgage, the lender will need to know the property address and the purchase price. This will allow them to show you exact numbers related to your monthly payments instead of estimates. The purchase price and your down payment will determine how much you need to borrow.
5. Formally apply for the loan
Once you’ve reached an agreement with the seller on the purchase price and you have your funds in order, you’re ready to officially apply for the loan. Please be prepared to provide your lender with any additional information or documentation they may request.
15-year fixed mortgage FAQs
Can you refinance to a 15-year mortgage?
Yes, it’s possible to refinance from a longer loan term into a 15-year mortgage. This can make sense after your home increases in value or your finances feel more stable. When deciding, consider the higher monthly payment against the potential interest savings. Refinancing also comes with closing costs; ideally, the long-term benefits would outweigh the upfront expenses.
Real-life scenario
Let’s say you have a 30-year fixed-rate mortgage. Five years later, you receive a promotion and salary increase. By refinancing into a 15-year home loan, your monthly mortgage payment increases, but you could save a significant amount in interest and pay off your home sooner. Refinancing to a shorter term can make sense if:
- Your income has increased or monthly expenses have decreased
- You plan to stay in the home long enough to recoup closing costs
- You want to build equity faster and reduce long-term interest costs
Refinancing to a 30-year term may still be beneficial. Primary factors include your budget and loan terms offered at the time you refinance.
Can first-time homebuyers get a 15-year mortgage?
Yes, first-time homebuyers are eligible to apply for 15-year mortgages. So long as they can meet the loan requirements, the lender should be able to approve them for the loan.
Can you pay off a 15-year mortgage early?
Yes, it’s possible to pay off a 15-year mortgage early, provided you can afford to do so. Just check with your lender to ensure there are no prepayment penalties if you do.
Do you have to make a larger down payment for a 15-year mortgage?
The down payment requirements won’t necessarily be higher for a 15-year mortgage versus a 30-year mortgage. However, putting more money down will decrease the size of the loan, which can help offset the higher monthly payments that come with a shorter loan term.
In summary
The 15-year fixed mortgage is a popular option because it allows borrowers to save on interest and build equity in their home faster. However, it comes with the tradeoff of higher monthly payments, which can make it more challenging to qualify for. If you’re interested in pursuing one, reach out to your lender to learn more.
