15-Year vs. 30-Year Mortgage: How To Choose

Buying a home comes with a lot of decisions, from the property you choose to the type of mortgage. You also have choices about the length of the loan. While most loan terms are 30 years in length, 15-year mortgages are also available and offer some advantages for homeowners. 

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.

15- vs. 30-Year Mortgages: Understanding the Key Differences

The numbers in “15”-year and “30”-year mortgage refer to the loan term. Assuming you make on-time, in-full payments each month, you’ll pay off a 15-year mortgage in 15 years and a 30-year mortgage in 30 years.

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.

To help you visualize and understand the differences between the two, let’s take a side-by-side look at what each mortgage will cost you in the short and long term.

15- vs. 30-Year Mortgage Side-By-Side Comparison

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.

Loan Variable	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	$175,447	$446,428
Total Cost of Mortgage	$495,447	$766,428

In this example, you’d save $623 per month on your monthly payment by opting for a 30-year term instead of a 15-year one.

However, you’ll end up paying $270,981 more in interest over the life of the loan, which is also the difference in the total cost of the mortgage.

To sum it up, you’ll pay less on a month-to-month basis with a 30-year term, but you’ll pay significantly more overall.

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 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.

Should You Choose a 15-Year or 30-Year Mortgage?

If you’re still torn between the different loan terms, here are some tips to keep in mind for each.

When to consider a 15-year mortgage:

• You have consistent income, want to pay less interest and can afford the higher payments.
• You’re a borrower who wants to retire early — because you’ll eliminate debt faster with a 15-year term.
• You want to build equity faster to increase your investment options.

When to consider a 30-year mortgage:

• You’re a borrower looking to keep monthly payments low.
• You have variable income and may find this loan more comfortable and flexible.
• You have other debts or want to allocate more of your monthly income to saving or investing.
• The Internal Revenue Service (IRS) allows borrowers to detect the interest portion of mortgage payments from their taxes. Since 30-year terms come with higher interest payments, these loans offer more potential tax savings.

How To Pay Off a 30-Year Mortgage Faster

Choosing a 30-year mortgage doesn’t mean you have to take 30 years to pay back the money you borrow. Here are some tips to pay it off sooner — and it’s even possible to pay off a 30-year mortgage in 15 years.

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, but be sure to verify this when you choose a lender and get a mortgage.

Make biweekly payments

This is a simple way to squeeze in an extra payment each year. By making biweekly payments, you’ll make 13 payments (26 half payments) in a year instead of 12 monthly ones. By year 13, that’s an entire extra year of payments — if you stick with it.

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]

Final Thoughts on 15-Year vs. 30-Year Mortgages

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.