fixedmortgage

A 15-year fixed mortgage is an economically efficient way to buy a home, for those who can afford it. But is it a realistic option for most people? 

A 15-year fixed will almost always garner lower interest rates than a 30-year fixed, which coupled with half the number of years of paying interest, can save you significant money over the life of a loan. However, there are some realities to consider before you go down that tougher, but shorter, road.

Here are a few pros and cons to the 15-year fixed mortgage: 

PROS:

  • Equity accrues much faster with these mortgages
  • The loan will be paid off in half the time as a 30-year fixed, which means your monthly payment will go away
  • You can save thousands to hundreds of thousands of dollars in interest over the life of the loan

CONS:

  • Monthly payments are significantly higher and this can impede cash flow for retirement or other savings
  • You will have diminished ability to save up cash in preparation for emergencies or unforeseen circumstances
  • If you need to refinance later to get out from under the higher payment, the loan costs could eat up the progress you made. 

TIPS:

While you are saving substantially over the life of the loan, your monthly payment will be much higher. While that may not be an issue in the short-term, here’s how to ensure you’re covered for the long-term:

  • Make sure you have a nest egg for emergencies that you can access at any time (meaning it’s not tied to your retirement)
  • Make sure you are not shortchanging your retirement savings and you have enough for expenses plus a little extra each month 
  • Make sure you are not over-committing your monthly income to the point that it undermines your quality of life

If all those bases are covered, a 15-year fixed mortgage could be a very savvy option for those who can manage it.