15 Year Fixed

A 15 year fixed mortgage is a home loan for which all of the terms are settled right at the beginning, with no changes from either side over the entire term of the contract. As you might imagine from the name, in this type of mortgage the term is 15 years. The fixed part usually refers to the interest rate being charged (although it can in certain circumstances refer to other things).

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What this then means is that you know exactly how much you have to pay each month for the next 15 years. Interest rates could rise to 20% (as they did in the 80s) and it won’t affect you at all. An additional bonus is that if interest rates fall you can always refinance anyway, so think of a 15 year fixed as an option: if interest rates go up you win, if they go down you can take advantage of that as well.

So why would you choose a 15 year fixed rather than the standard 30 year though? Well, borrowing money means that you pay interest (of course) and the shorter the period you the lower the total interest bill will be. Exactly the same is true in reverse of your payments of the principal loan amount: the shorter the mortgage the higher the amount you must pay off the loan amount each month. The way these balance out is that the longer the loan the lower the monthly payment but the higher the total amount paid over the years. If you can afford the payments on a 15 year fixed, those higher monthly payments, they are definitely worth thinking about.