Becoming a homeowner is a major financial responsibility, and interest rates have a big impact on how much your mortgage will cost you over the years. When you buy a house, you want to secure the right type of mortgage at the lowest possible rate. If you’re looking to pay off your home loan sooner than 30 years while saving on interest, a 15-year mortgage is an attractive option if you can afford it.
Current 15-year mortgage rate trends
The rate for a 15-year mortgage, which rose over the past year in response to the Federal Reserve hiking interest rates, is 6.16% as of April 12, 2023. The Fed has been increasing interest rates to try to tamp down on last year’s record-high inflation. Although mortgage rates have been steadily increasing over the past year, they’re likely to hover around these levels for a while as long as the Fed’s actions remain consistent with market expectations.
Though mortgage rates may level off, home prices are expected to remain high. The more expensive homes get, the bigger the mortgage you’ll need to afford that home. Make sure you shop around for mortgage lenders that can make worthwhile rates available to you. You should always speak with multiple lenders to figure out which loan offers make the most sense for your personal financial situation.
Here’s what you need to know to lock in the best mortgage rate possible for a new home.
The pros of a 15-year fixed mortgage
- Shorter loan term: The benefit of a 15-year fixed mortgage is that it takes half the length of time to pay off compared with a 30-year mortgage. You’ll have higher monthly payments, but you’ll pay this home loan off twice as fast, resulting in less interest over time.
- Lower interest rates: Usually, 15-year fixed interest rates are lower than 30-year rates because the lender doesn’t have to predict rates for an additional 15 years into the future, like they do for a 30-year loan.
- Build equity in your home much faster: A 15-year fixed mortgage allows you to build more equity in your home faster. This means you can enjoy some of the advantages of homeownership, such as refinancing your home loan when rates go down again, sooner. Typically, to get a good refi rate, lenders like to see at least 20% in home equity.
The cons of a 15-year fixed mortgage
- Higher monthly payments: One downside to a 15-year mortgage is that you’re stuck with high monthly payments for the duration of the home loan. For example, say you make a 20% down payment on a $500,000 mortgage at a 4% interest rate with a 15-year fixed mortgage, your monthly payment will be about $3,350, compared to just $2,300 with a 30-year fixed mortgage.
- The maximum mortgage amount you can borrow is smaller: Because you’re making high payments every month, lenders will offer you a smaller mortgage amount than they might with a 30-year loan. This reduces the risk to the lender that you will default on the loan.
- Less financial flexibility overall: If you put all of your eggs into a 15-year mortgage, it could limit your opportunity to spend your money in other ways. For example, you may have less available to contribute to investment or retirement accounts. You may also have less of a financial cushion to fall back on if you run into difficulties.
Something to consider
If you like the idea of paying off your mortgage sooner, but are worried about committing to higher monthly payments, there’s an alternative to consider. If you choose a 30-year mortgage over a 15-year mortgage, you can make additional payments throughout the year, which will help shorten your loan term. This allows you to effectively pay off your 30-year mortgage sooner, without locking yourself into the higher monthly payments that are attached to a 15-year mortgage.
Alternatives to a 15-year mortgage
- 15-year mortgage vs. 30-year mortgage: The main difference between a 15-year mortgage and a 30-year mortgage is that a 15-year mortgage will ultimately cost you less by saving you up to tens of thousands of dollars over the lifetime of the loan. You also pay a lower interest rate for a shorter amount of time, thereby lessening the overall cost of your loan. But paying off the loan in half the time means that your monthly payments can be almost double what they are for a 30-year loan.
- 15-year mortgage vs. 10-year mortgage: If you can afford the higher monthly payments that come with a 10-year mortgage you’ll save yourself five years of interest payments, however, you’ll likely require a higher income and credit score to qualify.
- Government-backed loan: If a 15-year mortgage doesn’t work for your particular financial situation you can also look into a government-backed loan like an FHA loan or USDA loan, which will typically have much lower credit score requirements and often allow you to make a small down payment or no down payment at all.
Current mortgage rates
|30-year fixed-rate FHA||6.65%||7.58%|
|30-year fixed-rate VA||6.71%||6.83%|
|30-year fixed-rate jumbo||7.20%||7.21%|
|15-year fixed-rate jumbo||6.70%||6.71%|
|5/1 ARM jumbo||5.94%||7.69%|
|7/1 ARM jumbo||6.13%||7.71%|
|30-year fixed-rate refinance||7.25%||7.27%|
|30-year fixed-rate FHA refinance||6.64%||7.58%|
|30-year fixed-rate VA refinance||6.77%||6.98%|
|30-year fixed-rate jumbo refinance||7.28%||7.29%|
|20-year fixed-rate refinance||7.12%||7.15%|
|15-year fixed-rate refinance||6.65%||6.68%|
|15-year fixed-rate jumbo refinance||6.71%||6.72%|
|5/1 ARM refinance||5.95%||7.61%|
|5/1 ARM jumbo refinance||5.97%||7.44%|
|7/1 ARM refinance||6.12%||7.74%|
|7/1 ARM jumbo refinance||6.09%||7.68%|
|10/1 ARM refinance||6.26%||7.72%|
We use information collected by Bankrate, which is owned by the same parent company as CNET, to track daily mortgage rate trends. The above table summarizes the average rates offered by lenders across the country.
A 15-year fixed mortgage is a loan to buy a house that you’ll pay off over 15 years with a set interest rate. Because it has a shorter loan term than a 30-year mortgage, the monthly payments are much higher than with a fixed 30-year loan.
You must be able to afford higher monthly payments to qualify for a 15-year loan and confirm your ability to pay. That means your salary, credit score and debt-to-income ratio -- that is, how much debt you carry each month divided by your monthly income before taxes -- play a bigger role in a 15-year mortgage than they do for a 30-year mortgage. So, if you have high-interest debt you’re trying to pay down, a lender will factor in those payments when considering approving you for the loan.
A good 15-year mortgage rate would generally be considered anything at or below the national average rate, which is currently at 6.16% as of April 12, 2023, according to Bankrate.
More mortgage tools and resources
You can use CNET’s mortgage calculator to help determine how much you can afford for a house and work out how to manage financially. The tool takes into account your monthly income, expenses and debt payments. In addition to those factors, your mortgage rate will depend on your credit score and the zip code where you are looking to buy a house.