The 15-year fixed mortgage

For decades, a 30-year fixed-rate mortgage was the standard term for most homebuyers. Now, in a period of new thriftiness, demographic changes and an aversion to taking on more debt than is necessary, the 15-year fixed mortgage is gaining popularity.

Broadly speaking, there are three types of buyers that tend to choose a 15-year mortgage:

1. Younger, high-income buyers who are purchasing less house than they could probably otherwise afford. While they might easily qualify for a 30-year mortgage on a more expensive home, they instead choose to take out a 15-year fixed mortgage and save thousands on interest by paying off their loan faster.
2. Middle-aged buyers who are eager to pay off their mortgages by the time they retire, perhaps so that they will no longer have house payments after they go on a fixed income.
3. Buyers who refinance their mortgages to pay off their home faster.

There are several advantages to financing a mortgage over a shorter time period. They include:

• Lower interest rates. 15-year fixed rates are generally slightly lower than rates on a 30-year mortgage.
• Less interest paid. Over the life of a loan, you'll typically pay tens of thousands of dollars less in interest payments on a 15-year fixed mortgage than you would on a 30-year loan.

The difference between a 30-year mortgage and a 15-year mortgage can best be seen by looking at an example. Note: the rates below are used only as a demonstration. We'll look at a $150,000 mortgage loaned at 5% for 15 years or a slightly higher 5.2% for 30 years. (Longer-term mortgages typically carry a slightly higher rate.)

• Payments: Calculated monthly payments on the 15-year loan would be $1,186, as compared with $824 on a 30-year loan.
• Interest: In the first five years of the loans, there isn't a great difference in the amount of interest you will pay. However, there is a significant difference in the cumulative amount of interest you would end up paying over the life of each loan. In this example, as the buyer, you would be paying approximately $146,000 in interest on the 30-year mortgage and approximately $63,000 on the 15-year mortgage.
• Tax deduction: Your mortgage tax deduction will be lower on the 15-year mortgage than it would be on the 30-year mortgage. But, that is more than offset by the significant savings on interest.

Whether you're shopping for 15-year fixed rates or other fixed rate mortgage options, Citizens has home loans designed to fit your particular needs. You can learn more about our mortgage rates and apply for a mortgage online today. Alternatively, you can contact a Citizens home loan advisor at 1-888-514-2300 for more information.