Fixed Rate Mortgage Compare 30-Year 15-Year

2010 March 11

Fixed Rate Mortgage is a mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust.

Lenders offer several types of mortgages, but the most common are fixed-rate mortgages. Other forms of mortgage loan include interest only mortgage, graduated payment mortgage, adjustable rate mortgage, negative amortization mortgage, and balloon payment mortgage.

Fixed-rate mortgage loans feature fixed rates and monthly payments, generally with terms for 15-year and 30-year.

Fixed-rate mortgage offers borrowers the advantage of not having to worry about the interest rates or monthly payments changing for the life of the loan.

15-Year Fixed and 30-Year Fixed Mortgage Comparison

30-Year Fixed Mortgage advantage: Monthly payments are lower than those on 15-year fixed loans because the interest is amortized over a longer period. Lower monthly payments free up money that borrowers can instead use in investments that yield more than their homes.

30-Year Fixed Mortgage disadvantage: Borrowers build home equity at a very slow pace since payments during the first several years pay mostly toward interest rather than principal. The overall interest cost is much higher because of the long amortization term. The interest rates are higher than on 15-year fixed loans.

15-Year Fixed Mortgage advantage: Borrowers build home equity quicker due to shorter amortization schedule. Overall interest cost is lower than 30-year or longer-term loans. The interest rates are lower than 30-year fixed loans.

15-Year Fixed Mortgage disadvantages: Monthly payments are higher than those on 30-year loans.

Principal amount: $200,000 mortgage
Interest rate: 5.00%

If we compare how much money you would pay out in interest over 30 years vs. 15 years. With a 15-year mortgage, you would save $101,826 in interest cost.

30-Year Fixed Mortgage
Rate Monthly payment: $1,073.64
Total interest paid: $186,511.57

15-Year Fixed Mortgage
Monthly payment: $1,581.59
Total interest paid: $84,685.71

Interest Cost difference: $101,825.86

Mortgage Prepayment Penalty

Fixed rate mortgages, like other types of mortgage, may offer the ability to prepay principal early without penalty. Early payments of part of the principal will reduce the total cost of the loan and will shorten the amount of time needed to pay off the loan. Some mortgages may offer a lower interest rate in exchange for the borrower accepting a prepayment penalty. In most cases, make sure that the mortgage agreement does not have a prepayment penalty.

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