How Great is a 15 Year Mortgage

A 15 year mortgage is usually cheaper than a 30 year one. That's how these things go, usually. Most people don't prefer the 15 year mortgage though, because they need to make large monthly payments, this way. It's understandable – you have to finish paying your mortgage in half the time. This is the way things used to be. These days, the 15 year mortgage is quite an attractive option, considering how you get save a lot of money with the cheap mortgage rates.

Would you make a good candidate for a shorter mortgage like this? Usually, if you are a homeowner who has much equity and you're interested in refinancing at a lower rate, this could be the option for you. If you're someone like this, you probably won't mind having to make a monthly payment that's twice the size of your typical 30 year mortgage. You'll be able to take advantage of the extra low interest rates this way.

What kind of savings can you make on the interest rate opting for a shorter term mortgage? Usually, you get save as much as 0.7%. You get charged something around 3.1%, at a time when 30 year mortgages charge 3.8%. Savings of this kind can amount to thousands over a 15 year period.

Over the entire duration of a 15 year mortgage, even a miniscule half percentage point less can translate to about 15% less paid in absolute terms – compared to what you would pay on a 30 year deal.

But compared to the rates that people paid prior to the housing collapse of 2007, both these rates are unimpressive. A 15 year mortgage back in the year 2007 would have cost you about 6.73%. A 15 year mortgage then would have been 6.5%. Over the course of a 15 year mortgage, you would only save 5% over what 30 year mortgage would cost you. Who could've imagined that they would easily drop three percentage points in five years?

A 15 year mortgage didn't really offer big enough savings to tempt people back then. Since you saved only 5% (compared to the 50% that you save these days), it just wasn't worth anybody's while to go to the that kind of trouble.

The large difference in cost that you see these days, completely changes everything. If you want to put it into real dollar terms, here it is.

If you took a 15 year deal today, you'd end up paying about $25,000 in interest for every $100,000 borrowed. On a 30 year deal, you'd pay $70,000 for every $100,000 borrowed. There's just no comparing the two.