15-Year Fixed-Rate Mortgage: A Complete Guide

A house is the biggest purchase most people will make, so understanding which type of mortgage to choose can make the process feel even more overwhelming. A 15-year fixed-rate mortgage can be an excellent option for quickly paying off your home loan and minimizing interest. Although your monthly payments will be higher, the long-term payoff of financial freedom is worth it for many people.

However, these loans aren’t suitable for everyone. To help you make the right call, we’ll run through the pros, cons, and current rates of 15-year fixed-rate mortgages, plus a comparison with other mortgage types.

What is a 15-Year Fixed-Rate Mortgage?

A fixed-rate mortgage features the same interest rate throughout the loan term, which is agreed upon with the lender as soon as you take out the loan. In the case of a 15-year fixed-rate mortgage, the loan term is 15 years — but 30-year fixed-rate mortgages are also standard.

After 15 years of on-time payments, you will pay the loan off and own your home.

How Does a 15-Year Fixed-Rate Mortgage Work?

A lot can change over 15 years, and mortgage lenders face the difficult decision of choosing an interest rate that will apply for the entire period. To make this tricky call, they consider a few different factors.

Term length is one element, with lenders typically offering lower interest rates for shorter terms. But here are a few other factors:

Credit score. Lenders want to work with reliable borrowers who are likely to make their mortgage payments on time every month. A higher credit score indicates this, leading to lenders offering a lower interest rate.
Market activity. Government policy and economic markets have a significant impact on interest rates. There are times when it is cheaper to borrow money due to lower interest rates in the economy, and the reverse is also true.
Location. Regulations impact how easy and expensive it is for lenders to offer their mortgages, and this affects rates. In the US, laws may vary between states.
Loan type. There are various types of mortgages, such as jumbo loans and USDA loans. Some types are associated with lower interest rates.
Down payment. Another factor that affects a borrower's perceived creditworthiness is the size of their down payment. The larger this down payment is, the more likely a lender will offer a lower interest rate.

Typically, a down payment is worth between 10 and 20% of the property’s value, although there are ways to secure a mortgage with a lower down payment — or even a zero down payment. As mentioned, a higher down payment can be a way to ensure a better deal on a mortgage.

The larger the down payment and the lower the interest rate, the lower the monthly mortgage payments.

But don’t forget that mortgage payments aren’t the only cost associated with home ownership. In most cases, borrowers must also pay mortgage insurance, home insurance, and property taxes. There are some exceptions — if you put a down payment of more than 20%, you can generally avoid mortgage insurance, and some loan types don’t require it.

15-Year Fixed-Rate Mortgage Example

To get an idea of the costs you can expect from a 15-year fixed-rate mortgage, let’s take the example of a house bought for $300,000. You put down a 10% down payment ($30,000), meaning a loan principal of $270,000. A 15-year mortgage is spread over fifteen years, which is 180 months. So, the monthly payments based on the principal alone would be $270,000 divided by 180 — that’s $1500.

Now, let’s add in the interest rate. If the mortgage company offers a rate of 6%, the interest cost is added to the figure above, bringing your total monthly payments to $2,278.

But we’re not finished yet! With a down payment below 20%, you must also pay private mortgage insurance (PMI), which generally costs 0.5% to 1.5% of the amount borrowed. There’s also house insurance and property taxes to consider.

These amounts will vary depending on the individual and their location, but according to Zillow’s mortgage calculator, these costs are as follows:

Taxes: $215
House insurance: $105
PMI: $133

The total monthly payments would be $2,2,78 + $215 + $105 + $133 = $2,731.

If you put down a 20% down payment, you would avoid PMI and have a smaller mortgage, resulting in lower principal and interest payments.

In this case, the total monthly payments would be $2,025 + $215 +105 = $2,025.

Types of 15-Year Fixed-Rate Mortgage

Some home loans are government-backed, meaning the government agrees to insure the mortgage if the borrower defaults. 15-year fixed-rate mortgages are sometimes available as government-backed loans. These can be FHA loans, VA loans, or USDA loans, each insured by a different government department.

However, most 15-year fixed-rate mortgages are conventional loans, which aren’t government-backed. Conventional loans can be:

Confirming: Meet regulations for sale to Freddie Mac or Fannie Mae
Nonconforming: Don’t meet regulations for sale to Freddie Mac or Fannie Mae

Different mortgage lenders may offer other products.

Pros and Cons of a 15-Year Fixed-Rate Mortgage

Pros	Cons
You’ll pay less interest over the life of the loan	Higher monthly payments than 30-year loans
You’ll build equity faster	Harder to qualify due to the need for a higher income and a better credit score
Lower interest rates than 30-year loans	High payments provide less flexibility
You can usually overpay on the loan to reduce your debt, offering flexibility	Limits the type of house you can afford
A shorter loan term means you pay off your mortgage more quickly	It makes it more challenging to save money
A fixed interest rate offers certainty and stability	Can’t make the maximum mortgage interest tax deduction

Is a 15-Year Fixed-Rate Mortgage a Good Idea?

In theory, 15-year fixed-rate mortgages are a financially savvy choice as they will limit how much interest you pay. Since you know your mortgage payments each month, it’s easy to budget and plan for the future.

However, with a shorter loan term, high monthly payments are inevitable, meaning there’s a higher risk of missing payments. Borrowers should be weary of overstretching themselves. As with any mortgage, comparing rates and deals from different lenders is crucial.

Consider a 15-Year Fixed-Rate Mortgage If:

You want to own a home as quickly as possible. A shorter loan term means a faster path to financial independence and mortgage-free life.
You have a solid financial profile. Since it’s harder to qualify for a 15-year loan term, having a solid credit history and higher income is essential.
You prioritize finances over home size. Taking out a 15-year mortgage will limit your budget, preventing you from buying a more extensive and expensive home.

Is Now a Good Time for a 15-Year Fixed-Rate Mortgage?

As of May 16, 2024, the average 15-year fixed-rate mortgage had an interest rate of 6.57%. This is almost half a percentage point lower than the average rate for a 30-year fixed-rate mortgage, which is 7.13%.

However, rates fluctuate constantly, and lenders may offer rates that are higher or lower than the market average. It’s best to talk to a mortgage advisor for the most accurate quote.

You can keep up with average daily mortgage rates for 15-year fixed-rate mortgages on FreeRateUpdate. We post the latest rates every day, Monday to Friday.

How do 15-year Fixed-Rate Mortgages Compare to Adjustable-Rate Mortgages?

An alternative to fixed-rate mortgages is an adjustable-rate mortgage (ARM). In this case, the interest rate changes throughout the loan instead of remaining constant, meaning monthly payments will also be subject to change.

Interest rates change in line with an index that tracks market rates, meaning that borrowers will pay an interest rate that aligns with the federal funds rate (set by the Fed bank) and interest rates from other financial products.

Without hindsight, knowing whether a fixed-rate or adjustable-rate mortgage will get you the best deal is impossible. If you sign up for a 15-year fixed-rate mortgage of 7% and mortgage rates rise to 10% over the next fifteen years, you will have bagged yourself a steal. But if mortgage rates end up falling to 5%, you would have been financially better off opting for the adjustable-rate mortgage.

Ultimately, the choice comes down to how much the borrower values stability and how prepared they are to take risks.

FAQs

Can You Pay Off a 15-Year-Fixed-Rate Mortgage Early?

Making extra payments on a 15-year fixed-rate mortgage and paying the loan off early is usually possible. However, mortgage lenders sometimes apply a prepayment penalty, so always check your loan term.

Is It Better to Get a 15-Year or 30-Year Mortgage?

The best choice will depend on the preferences and financial situation of the borrower. A 15-year mortgage is a good choice for minimizing how much interest you pay and allowing you to build equity more quickly, but a 30-year mortgage will allow you to buy a more expensive home.

What Credit Score Do I Need for a 15-Year Mortgage?

Credit requirements vary between lenders and additional factors, such as the size of the down payment and the type of loan. However, a minimum credit score 620 is typical for a 15-year mortgage. A higher credit score will help you to get a better deal.