Buying a house is always a big step in anyone’s life. There are so many different factors to keep track of, and one of the most important ones is the mortgage. There are many options here too. There are 5, 10, 15, and 30 year time frames in which you can pay off your debts, and depending on a variety of factors, these come with their own interest rates.
Here’s what you need to know about 15 year home mortgage interest rates.
What Exactly Is Interest?
Almost no one has enough money to fully pay off a new house in a single payment. Like many things in life, houses have to be paid off in increments over a long period of time. But it’s also a bit more complicated than that. The overall process of selling and buying a house is complex and requires many different players. To understand interest, you first have to understand the different roles involved in the real estate industry.
- The Buyer – This is you, the person who wants to buy a house.
- The Seller – This is the person selling the house.
- The Lender – This is the entity (often a bank) who is willing to loan you the money you need to purchase the house from the seller.
- The Borrower – That’s also you. It’s the role you take on in relation to the lender.
So, what incentive would the lender have to loan you all that money in the first place? The answer is interest. The lender gives you the money you need to buy the house with an agreement that you pay the money back to them over time, plus interest.
Interest is essentially a fee on top of the loan. In the long-term, the lender needs to make money, and they do so by collecting interest. It is basically the cost of using someone else’s money.
Interest is usually calculated as a percentage of the loan itself, and like the loan, is paid back in increments over time. Usually people pay a percentage of the overall interest when they pay back the loan on a monthly basis.
Your 15 year home mortgage interest rates (the amount of interest you will pay on a loan) are determined by a variety of factors.
What Decides Your 15 Year Home Mortgage Interest Rate?
Like most things in life, there are factors involved here that you can control, and others that you can’t.
What you can control:
The factors you can control all translate to a degree of risk in the mind of the lender. What this means is, the lender decides, in part, what your interest rates are going to be based on how risky a borrower you appear to be. It’s all about how likely you are to be able to pay back your 15 year home mortgage interest rate in the first place.
- Your credit score – Do you have good credit? Moderate credit? Poor credit? The answer is going to determine your degree of risk, as your credit score is a reflection of how responsible you are with money.
- The size of the loan you need – This is just one factor that determines how likely you are to be able to pay back the loan plus interest. The higher the loan, the more risky the deal seems to the lender. If it’s a relatively small loan, you’re set at a lower degree of risk.
- How much you can pay as a down payment – Ultimately, this is going to determine how much you are going to have to pay off going forward. If you can pay a significant portion of your debt right off that bat, that’s a good sign!
Where the house you want is located (usually the state) – Lenders take into consideration the state in which the house is located, as the average number of people who can pay off their loans is different on a state by state basis.
What you can’t control:
- The Federal funds rate – In order to keep the economy as balanced as possible, the U.S. Federal Reserve raises or lowers their rate of funds. This is going to affect your 15 year home mortgage interest rate.
- Supply and demand – Lenders have many different borrowers they’re working with at any given time. They are always in the process of balancing how much money they are lending out, with how much interest they are collecting. If they are collecting a lot of interest, your 15 year home mortgage interest rates will be lower. If they are lending a lot of money out, they will be higher.
- Inflation and its effects on the dollar – The value of the dollar at any given time is also going to decide whether your 15 year home mortgage interest rates are higher or lower.
Ways You Can Pay Your 15 Year Home Mortgage Interest Rates
Making your way through paying your 15 year home mortgage interest rates in the face of ever changing market conditions, unpredictable dollar value, and the state of your lender at any given moment can be stressful. Depending on your circumstances, there are a number of options for payment that can be beneficial. These include:
Fixed Rate Mortgages
As the name implies, with this option you pay a fixed rate. This is the most common option people take, as most people rely on a steady monthly income and would like their payments to be consistent with that. A fixed rate mortgage allows you to pay your 15 year home mortgage interest rates consistently despite changing conditions that would otherwise affect your rates.
However, that isn’t to say your monthly payment will be exactly the same each month. There will be some fluctuation if, for instance, your homeowner’s insurance or property taxes change over time.
Fixed rate mortgages are amortized, meaning your monthly payments go towards your principal (the total amount of the loan) and interest.
Adjustable Rate Mortgage
With adjustable rate mortgages, your 15 year home mortgage interest rates will be about 2 to 3 percent below a fixed rate mortgage, meaning you have more options available to you and can buy a pricier home. That said, adjustable rate mortgages are also at the mercy of market and dollar fluctuations. Your monthly payments will rise and fall as a result. This is a double-edged sword and comes with both positives and negatives. Market fluctuations and other factors can raise or lower your required monthly payments.
This is an option for people with more dynamic monthly incomes who want a more expensive home.