30-Year Fixed Mortgage Rate Or
15-Year Fixed Mortgage Rate?

Typically, mortgage lenders make fixed-rate mortgages available with loan terms of 10 years, 15 years, 20 years, and 30 years. Other lengths are available too but often accompanied by high mortgage rates so few borrowers ever use them. The 30-year fixed rate mortgage is the most common fixed-rate mortgage, likely because repayments on a 30-year fixed rate mortgage are lowest when compared to other fixed-rate mortgages. Current 30-year mortgage payments are lowest because the amount borrowed from the bank is repaid over the longest period of time. By contrast, monthly mortgage payments associated with a 15-year fixed rate mortgage are higher because repayments are compressed over a shorter period of time.
The formula for calculating mortgage payments is called amortization (ah-mohr-tih-ZAY-shun). Amortization favors banks because it results in mortgage payments with a high percentage of payment going toward interest in the early years of a loan and more of the principal being paid off in the later years of a loan.

Consider today’s current 30-year mortgage rate.  72 percent of the first mortgage payment is spent on interest. Alternatively, a 15-year fixed rate mortgage’s first payment is just 47 percent interest. A 30-year fixed rate mortgage does not pay more principal than interest in each payment until reaches its 165th payment (over 13 years into the loan). A 30-year fixed rate mortgage payment is the least expensive monthly payment of the common fixed-rate loan terms, but may not be your best long-term deal. Homeowners using 30-year fixed rate financing pay 65% more interest over the life of a loan as compared to homeowners using a 15-fixed rate mortgage.