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A 30-year mortgage has long been the industry norm, and for good reason: It allows the homebuyer to spread the loan out over a long period to keep payments as low as possible. But now that interest rates have dropped to near-record lows, 15-year mortgages are becoming more popular. Is a 15-year mortgage right for you?
When it comes to comparing mortgage lenders, many new homebuyers confuse the annual percentage rate (APR) with the interest rate. In truth, these rates measure two very different things. Understanding the role that each of these numbers play in the total cost of your mortgage isn't only important for personal knowledge, it could save you thousands of dollars over the life of your loan.
With interest rates at historic lows, many homeowners or buyers may be tempted to choose a 15-year fixed rate mortgage over the more typical 30-year mortgage. The 15-year enables you to pay off your loan faster and likely lock in a lower interest rate, but will come with higher payments. To make a smart decision, you need to determine what’s most important to you: financial flexibility or paying off your mortgage faster.