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15 Year Fixed Rate Loan
A standard 15 year fixed rate loan has a fixed interest rate, a fixed
monthly payment, and is fully amortizing over a 15 years. A portion of each monthly
payment covers the interest due on the loan. The remaining portion is applied toward the
reduction of the principal balance. Regular payments systematically reduce the loan
balance until the loan is paid in full.
The interest rate is approximately 10% lower than that of a 30 year,
fixed-rate loan, but because of the reduced loan term, the monthly payments are
approximately 28% higher. About 50% of the principal balance is paid off in the first nine
years. Clearly, this product appeals to borrowers whose main concern is rapid equity
build-up.
Advantages |
Disadvantages |
| Because lenders get their money back
sooner than with a 30 year fixed mortgage, they charge a slightly lower rate for 15 year
loans. Also, because the loan is paid off faster, the borrower pays less total
interest—more like 50% less than a 30 year, fixed-rate loan. |
The monthly payment is higher. Also, many
people out there believe that 30 year loans are still better deals. With most mortgages
out there today, the borrower can still make extra payments whenever they like to reduce
the loan balance. In addition, a 15 year mortgage can be thought of as a "forced
savings plan." The borrower is putting money into the mortgage that might otherwise
be invested in stocks, bonds or other real estate. |
Loan Limits:
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$300,700 1 Unit Properties (call for 2-4 unit
properties). |
Underwriting:
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Standard
FNMA/FHLMC underwriting guidelines |
Mtg. Insurance:
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Required on all loans with a LTV > 80%
(cash-out refi’s w/ LTV > 75%) |
Documentation:
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Standard documentation |
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