What's wrong with a 15-year fixed rate mortgage? Plenty

With mortgage rates hovering around record lows, the mortgage refinancing business is booming.

The days of pay-option NINJA (No income, no job/assets) loans are over, and fixed rate mortgages are cool again. The New York Times reports that the ultimate conservative financing method -- the 15-year fixed rate mortgage -- is gaining on the 30-year mortgage.

But is that too conservative? I think so. In fact, I'll go out on a limb and say that with interest rates this low and the specter of inflation as strong as it is, you would have to be nuts to take out anything other than 30-year fixed rate mortgage right now.

Here's why: A 15-year fixed rate mortgage achieves very little savings compared with a 30-year mortgage, but lacks any of the flexibility. Let's look at it with numbers (courtesy of BankRate.com):

  • The interest rate on a 30-year fixed rate mortgage is 4.98%. The monthly payment on a $200,000 loan is $1,071.20.

  • The interest rate on a 15-year fixed rate mortgage is 4.63%. The monthly payment on a $200,000 loan is $1,543.31.