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15- vs. 30-Year Mortgage: Which One is Right for You?

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A key decision you must make when buying a home is weighing a 15- versus 30-year mortgage. While the 30-year mortgage is the most common, the 15-year mortgage offers some key advantages — if you can afford one.

Comparing a 15- vs. 30-year mortgage

A mortgage term is the length of time you’ll need to pay back the loan. Typically, lenders offer terms of 30, 20 or 15 years, but other terms may also be available.

The difference in a 15- versus 30-year mortgage simply comes down to the number of payments you’ll make and the amount of interest you’ll need to pay over time. With a 15-year mortgage, your monthly payment will be higher because you’re paying back the loan in less time than you would with a 30-year mortgage. But that means you’ll also pay less in interest over the life of the loan.

Fifteen-year mortgages also tend to have lower interest rates than 30-year mortgages. Here’s an example of the monthly payment differences between 15- and 30-year mortgage rates.

Costs of a 15- vs. 30-year mortgage 

15-year mortgage 30-year mortgage
Loan amount $200,000 $200,000
Interest rate 3.25% 3.75%
Monthly payment (principal and interest) $1,405.34 $926.23
Total amount paid over loan term $337,573.26 $484,543.23

15- vs. 30-year mortgage: Pros and cons

Both the 15-year and the 30-year mortgage have their benefits and drawbacks. Here are the most important ones to consider.

15-year loan pros

Faster payoff. With a 15-year mortgage, you’ll be mortgage debt-free in half the time of a traditional, 30-year mortgage.

Less interest paid. With fewer payments, you’ll also pay less in interest. Depending on your loan size, this could be a difference of tens of thousands of dollars over the life of the loan.

Lower interest rate. Lenders typically charge lower rates on a 15-year mortgage, a difference that will also translate to savings over the course of your loan.

More equity, faster. With a 15-year mortgage, you’re paying down more of the principal more quickly. This means you’re building equity in your home faster, which you can tap down the line if needed.

15-year loan cons

Higher monthly payment. With the shorter loan, you’ll be paying much more each month. Sometimes your payment could be 40% higher than you’d have with a 30-year mortgage, or more.

Smaller loan amount. Since the payment is higher, lenders will not qualify you for as large a loan with a 15-year mortgage. If your dream house is on the higher end of your affordability scale, you might not be able to choose a 15-year loan.

30-year loan pros

Lower monthly payment. With the longer time frame, your monthly payment will be significantly lower with a 30-year mortgage.

Easier to qualify. The lower monthly payment makes it easier for people to meet debt-to-income (DTI) ratio requirements and qualify for a loan.

More room in budget. A lower payment means you’ll have more money to spend on other priorities.

30-year loan cons

More interest paid. Since you’ll be paying interest longer, you’ll pay much more over the life of your mortgage.

Higher interest rates. Lenders deem a 30-year mortgage a greater risk and charge higher rates.

Slower equity. Lower payments also mean you’re building equity less quickly. This could also prolong the time you have to pay for private mortgage insurance.

Should you choose a 15- or 30-year mortgage?

So how do you decide? Take a look at your personal financial situation and consider the following.

A 15-year loan is best if …

  • You can comfortably afford a higher monthly mortgage payment. Your monthly principal and interest payments will be significantly higher on a 15-year loan. Only take this route if you have room in your budget and can still afford to cover your other obligations, including other loan payments.
  • You want to build equity more quickly. You’re paying more toward your principal each month with a 15- versus 30-year mortgage, which allows you to build equity in your home at a faster pace. Having access to more equity means you can later use a cash-out refinance, home equity loan or home equity line of credit to pursue other financial goals. It also means you’ll own your home free and clear much sooner.
  • You’re buying a house well within your means. You’ll likely qualify for a smaller loan if you go with the 15-year option. If you’re not looking to buy the most house you can afford, this could be the better option.
  • You plan to stay in your home short term. If you know you’ll have to sell relatively quickly, choosing a 15-year mortgage can help you build more equity and make more money when reselling. You’ll be paying more principal and less interest, meaning you’ll have a bigger profit once all of the fees and commissions are paid.

A 30-year loan is best if…

  • You want a lower monthly mortgage payment. Your repayment term is longer with a 30-year loan, which spreads out your mortgage payments over a greater period of time and makes them more affordable.
  • You want more room in your budget. A lower monthly mortgage payment gives you more wiggle room month to month for budgeting and focusing on other financial goals, such as boosting your emergency fund or retirement savings.
  • You want the option to pay off your mortgage faster without being tied down. If you borrow a 15-year loan, you’re committing to a higher monthly mortgage payment for the entire loan term. However, a 30-year mortgage gives you the flexibility to pay extra money toward your principal and shave time off your repayment term whenever you have the financial bandwidth to do so.
  • You want to buy the most house you can afford. You’ll likely qualify for a larger loan with a 30-year mortgage. This means you can buy a more expensive house.

15- vs. 30-year mortgage: FAQs

How can I pay down a 30-year loan faster?

You have options to pay off your mortgage faster even with a 30-year mortgage. You can choose to make biweekly payments instead of the regular monthly payment, meaning you’ll make one extra full payment over the course of the year. You can also choose to make a larger payment each month. Be sure to ask your lender to apply your extra payments to your principal balance.

One word of caution: Double-check that your mortgage doesn’t have a prepayment penalty before going this route. Most of the time, such a penalty only applies if you pay off your entire mortgage early. But in some cases, you might face a fee if you make small payments toward principal ahead of time.

Will I save more money with a 15- or 30-year mortgage?

Over the long term, you will undoubtedly save more money with a 15-year mortgage. Your total interest costs and total amount paid will be dramatically lower. Short term, though, you save money on your monthly payment by choosing the 30-year mortgage.

What other mortgage loan terms are available?

While 30-year and 15-year mortgages are the most common, other lengths are available. Some lenders will let you choose any length of time from eight years to 30 years. Sometimes, you can even find a 40-year mortgage.

How else can I lower my mortgage payment?

The term of the mortgage is not the only way to control the size of the mortgage payment. You can also lower your monthly mortgage payment by making a larger down payment, improving your credit score or shopping around for the lowest interest rate.

Can I refinance to a 15- or 30-year mortgage?

Yes, this choice isn’t just one you need to make when buying a new home. You can also refinance to a 30-year or 15-year mortgage. If you currently have a 30-year mortgage, you can change that later by refinancing to a 15-year term.

 

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