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15- vs. 30-Year Mortgages: What’s the Best Option for You?

TLDR

What You Need To Know

  • The 15-year mortgage can be a great choice for borrowers who have a consistent income, want to pay less interest, build equity faster and be debt-free sooner
  • A 30-year mortgage will have lower monthly payments, but you’ll build equity slower and pay more interest over the long run
  • Making additional payments, on top of your required payments, can help you build equity faster and pay off your loan earlier

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Buying a home comes with a lot of decisions, from the property you choose to the type of financing you use.

In addition to selecting the kind of mortgage you want to take out, you might also find yourself weighing your options for the length of your loan term. 

While most loan terms are 30 years in length, some lenders offer 15-year mortgages. 

Both of these mortgages come with pros and cons, which you should evaluate to decide which mortgage is best for you.

To help you make the best possible choice, let’s discuss the 15- versus 30-year mortgage, including their differences, a breakdown of the costs and the pros and cons. 

Deciding Between 15-Year Mortgage vs. 30-Year Mortgage

Taking out a loan entails a promise to pay back the money you borrow, along with interest.

Before you apply for a mortgage, take some time to understand the differences between a 15-year mortgage and a 30-year mortgage.

With a 15-year mortgage, you’ll pay off your house completely in 15 years – assuming you make your monthly payments on time and don’t take out any additional loans against the property. Similarly, a 30-year mortgage will take 30 years to pay off if you make regular monthly payments. 

A 15-year mortgage comes with a higher monthly payment. But because you’re paying down the loan faster, you’ll build equity more quickly, own the home outright earlier and pay less interest over the life of the loan. 

A 30-year mortgage will have lower monthly payments, but you’ll build equity slower and pay more interest over the long run. Fortunately, many lenders will let you pay off a 30-year mortgage early without charging a penalty, so you can have the flexibility of paying less interest and owning the home sooner. 

To help you better understand the differences between a 15-year and 30-year mortgage, let’s break down the exact costs of each loan term.

Cost Breakdown: 15- vs. 30-Year Mortgage

Say you want to buy a $400,000 house (with a 20% down payment), but you aren’t sure if you want to take out a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage. 

Since 15-year mortgages usually come with lower interest rates than 30-year mortgages, your lender offers you a 6.3% interest rate on the 15-year mortgage. The other option is a 30-year mortgage with a 7% interest rate.

Despite borrowing the same amount of money, the numbers look very different, which you can see from the table below.

Select a tab to see related data:
  • 15-Year Mortgage
  • 30-Year Mortgage
15-Year Mortgage 30-Year Mortgage
Mortgage Amount $320,000 $320,000
Interest Rate 6.3% 7%
Monthly Mortgage Payment $2,752 $2,129
Total Cost of Interest $175,446 $446,428
Total Cost of Mortgage $495,446 $766,428

Pros and Cons of a 15-Year Mortgage

Choosing a 15-year mortgage comes down to your financial goals and what you hope to get out of your real estate purchase.

PROS of a 15-year mortgage👍

Pay less interest

Historically, 15-year mortgages have an interest rate 0.4% – 1.0% lower than 30-year mortgages.[1] And since you’re only paying interest for half the time, you pay less total interest over the life of the loan.

Shorter repayment term

A 15-year mortgage is structured to be paid off after 180 monthly payments, while a 30-year mortgage has 360 payments. Fewer total payments means you can pay the loan back faster.

Build equity faster

Every time you make a payment toward the loan’s principal balance, you’ll build equity in the property. You can then borrow against your available equity sooner with a second mortgage.

CONS of a 15-year mortgage👎

Higher monthly payments

A 15-year term means you have fewer years to pay down your loan. As a result, you’ll contribute more money toward your mortgage, resulting in higher monthly payments compared to a 30-year mortgage.

Less flexibility

You may be able to pay off a 15-year mortgage early, but it won’t be easy to extend the loan term without refinancing or modifying your loan. A 15-year mortgage requires you to commit to paying off your loan faster, which might put some unwanted pressure on your finances.

Pros and Cons of a 30-Year Mortgage 

If a 15-year mortgage doesn’t help you achieve your home-buying goals, a 30-year mortgage may better suit your needs.

PROS of a 30-year Mortgage👍

Lower monthly payments

30-year mortgages have lower monthly payments than 15-year mortgages, which can be helpful if income is tight or you have other, more pressing financial priorities.

Option to pay more than required

If you have a 30-year mortgage, you can contribute more than the required monthly payment. This can help you save on interest charges and lower your principal balance faster.

More homes you can afford

The lower monthly payments of a 30-year mortgage can help you qualify for a more expensive loan, opening up more homes for you to choose from.

CONS of a 30-year mortgage👎

Pay more in interest

A 30-year term will cost you more interest, which can add up to hundreds of thousands of additional dollars over the course of the loan.

Build equity at a slower pace

Taking more time to pay down the mortgage means you build equity at a slower pace.

When To Take Out a 15-Year Mortgage

The 15-year mortgage can be a great choice for borrowers who have a consistent income, want to pay less interest, build equity faster and be debt-free sooner.

Borrowers who want to retire earlier may prefer a 15-year mortgage because it allows them to build equity faster and eliminate debt sooner. Similarly, home buyers with secure jobs and a predictable income might opt to take out a 15-year mortgage to save money on interest and own their home sooner.

When To Take Out a 30-Year Mortgage

The 30-year mortgage is ideal for borrowers looking to keep their monthly payments low. 

People with a variable income may find a 30-year mortgage more comfortable and flexible – especially those who simply have other debts or want to allocate more of their monthly income to savings or investments.

Another benefit of a 30-year mortgage is the additional tax savings. The Internal Revenue Service (IRS) allows borrowers to deduct the interest portion of mortgage payments from their taxes. Since 30-year mortgages cost borrowers more in interest charges, these loans offer more tax savings than 15-year mortgages.

How To Pay Off a 30-Year Mortgage in 15 Years

Choosing a 30-year mortgage doesn’t mean you have to take 30 years to pay back the money you borrow. In fact, you can pay off a 30-year mortgage in 15 years using either of the following strategies.

Make additional payments

Making additional payments, on top of your required payments, can help you build equity faster and pay off your loan earlier. 

Many lenders don’t charge a prepayment penalty. And those who do typically won’t impose the fee, unless you pay off the mortgage within the first 3 – 5 years of the loan.

Refinance

Refinancing your mortgage can replace your existing 30-year loan with a 15-year loan. When you refinance, you have to apply (and be approved) for a new loan, which will include new loan terms and a new set of closing costs.

The benefits of refinancing are that you can potentially take advantage of a lower interest rate if rates have declined. However, there’s always the possibility that rates have gone up. In either case, you’ll have to account for closing costs, which can be 3% – 6% of the loan amount.[2]

Picking the Right Mortgage for You

Paying back your mortgage faster can help you save money and enjoy owning your home debt-free sooner. If you have a stable income that allows you to afford a 15-year mortgage, the benefits may be worthwhile. But if you feel like you aren’t ready to take on larger monthly payments, starting with a 30-year mortgage may be a safer, more sensible place to start.

  1. U.S. Federal Reserve System. “15-Year Fixed Rate Mortgage Average in the United States (MORTGAGE15US).” Retrieved November 2022 from https://fred.stlouisfed.org/series/MORTGAGE15US#0

  2. Federal Reserve System. “What will refinancing cost?” Retrieved November 2022 from https://www.federalreserve.gov/pubs/refinancings/#cost

ICYMI

In Case You Missed It

  1. 15-year mortgages generally come with an interest rate that’s less than what you’ll pay on a 30-year mortgage

  2. Even if you have a 30-year mortgage, you can make extra payments or refinance to pay off your mortgage early and save money

  3. A 15-year mortgage can limit the number of homes you’re able to afford, but you’ll pay significantly less interest over the life of the loan

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