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  • Is a 15-Year Fixed-Mortgage for You?

    As mortgage rates stay at historic lows, there has been an increase of borrowers choosing to refinance to 15-year fixed-mortgages. Between January and June of this year, 26% of homeowners chose this option. With low rates and a chance to pay your mortgage off faster, it’s no wonder so many homeowners are going this route. But is it the route for you?

    Although with a 15-year fixed-mortgage you’ll be paying less interest, your monthly payments will increase significantly and can be a burden on your savings. For example, if you have a 30-year fixed-mortgage of $200,000 with a 4.5% interest rate, your monthly payment will be $1015. If you switch to a 15-year fixed-mortgage with 4% interest rate, your payment will increase to $1480. If you’re unsure of your future income or don’t have significant savings, this monthly payment increase could hurt your finances.

    So who is a 15-year fixed-mortgage good for? Usually older borrowers, with stable, increased incomes and more equity. Another indicator that a 15-year fixed-mortgage would be an option for you is if you have substantial savings and a debt-income ratio lower than 35%. 

    However, hope is not lost if you don’t meet the above standards. You can still have a 30-year fixed-mortgage and be able to pay your mortgage off quicker. Simply try to make extra payments each month if you can. This way, if your finances become tight in the future, you aren’t forced to pay an extra $400, like you would on a 15-year.

    Oct 4 2011