15-Year Fixed Loans
Ideal 15-Year Fixed Loan Borrowers
Ideal candidates for a 15 year fixed loan are those who wish to pay off their loan as soon as possible and who want a set interest rate that does not increase or decrease as they pay the loan off. Explore the advantages of these loans below.
How A 15-Year Fixed Loan Works
15 year fixed loans are payed off over a 15 year period. Given that the loan is paid off in a shorter period of time than a 30 year fixed loan, the borrower will pay less interest.
A fixed-rate mortgage loan is a loan with the same interest rate throughout the entire life of the loan, which is usually 15 or 30 years. It can be FHA, Conventional or VA loans. Your monthly P&I payment – your principal plus your interest – stays the same. Each month, you pay off some of the principal balance. This means, next month, your principal balance is lower. More of your monthly payment is being paid towards the principal, and less is being paid towards the interest.
What You’ll Need To Qualify For A 15-Year Fixed Loan
- A minimum 3% down payment.
- A minimum FICO® Score of 620.
- A debt-to-income ratio (DTI) of no more than 50%. Estimate your DTI by adding your monthly debt payments (such as credit card and car payments) and dividing the total by your monthly income before taxes.
- Money to cover closing costs, which are about 2% – 6% of the purchase price.
Advantages of 15-Year Fixed Loans
- Pay off your mortgage faster - the homebuyer owns their home in half the time it would take them to own it through a traditional mortgage.
- Avoid prepayment penalties if you pay off your loan before the 15 year period.
- The homebuyer saves more than half of the amount of interest paid in a 30-year mortgage.
- Lenders usually offer this type of mortgage at a lower interest rate than the interest rate of a 30-year loan.
- Put as little as 3% down to buy a home.
- You have the option of refinancing your home for up to 97% of its total value.
Mortgage Insurance Requirements
For borrowers making smaller down payments, primary mortgage insurance (PMI) may be required. This threshold is a downpayment of 20% of your home’s value.
- PMI payments range between 0.5% and 1% of your loan annually, distributed over 12 payments.
- Once you reach 20% equity in your home, you may be able to request to cancel PMI.
- PMI is often cancelled automatically once you reach 22% equity.
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