If you’re preparing to buy a home, you will need to look at not only mortgage interest rates, but also loan types and terms. Your mortgage term is how long you have to repay the loan, and most terms are 15 or 30 years.
Should you get a 15- or 30-year mortgage? If you can afford the payment on a 15-year mortgage, the long-term interest savings are great. But the lower monthly payment of a 30-year mortgage could offer you more flexibility if your financial situation changes.
Here, we break down the 15- vs. 30-year mortgage debate, including the pros and cons of each and how to decide between the two.
What Is the Difference Between a 15- and 30-Year Mortgage?
The primary difference between a 15- and 30-year mortgage is the length of time to pay off the loan.
A 15-year mortgage pays off your home in half the time of a 30-year loan and saves on interest overall. Borrowers typically pay lower rates for 15-year loans because the shorter term reduces risk for lenders.
The shorter term also means that more of your payment goes toward paying down principal, so you can build equity faster than with a 30-year mortgage. The trade-off is a higher monthly payment than a 30-year mortgage – at current rates, about 25-30% higher. “The higher costs may not leave room for additional homeownership costs, such as renovations or unexpected repairs and maintenance,” says Shelby McDaniels, national director of business development at Chase Home Lending.
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A 30-year loan’s lower monthly payment can provide more cushion in your budget. This can help make homeownership a possibility for more people.
30-Year Mortgage Pros and Cons
| Pros | Cons |
| Lower monthly payments than a 15-year loan because they are stretched out over a longer time. | Higher interest rates because lenders consider a 30-year loan a greater risk than a 15-year loan. |
| Easier to qualify for this loan with its smaller payments. | Higher total interest paid. |
| More room in your budget for other financial goals. | Slower growth in home equity than a 15-year loan. |
15-Year Mortgage Pros and Cons
| Pros | Cons |
| Lower interest rates compared with 30-year loans because lenders take on less risk. | Higher monthly payments compared with a 30-year loan. |
| Lower total interest charges than a 30-year mortgage. | You may not qualify for as big a loan because of the higher monthly payments. |
| Quicker loan payoff. | Slower growth in home equity than a 15-year loan. |
| Faster equity growth, with more of your payment going toward principal. | Larger payments leave less flexibility for other financial goals, such as saving. |
Crunching the Numbers: 15- vs. 30-Year Mortgage
Let’s say you need a $300,000 mortgage and qualify for a 15-year at 6.5% or a 30-year for 7.5%. Here’s how those costs would compare:
| 15-Year | 30-Year | Difference | |
| Monthly Payment | $2,613 | $2,098 | $516 savings per month if you choose a 30-year mortgage |
| Total Interest Paid After Full Term | $170,398 | $455,152 | $284,754 savings in total if you choose a 15-year mortgage |
| Total Loan Amount After Full Term | $470,398 | $755,152 |
Alternatives to a Standard Mortgage Payoff
Exploring Other Mortgage Terms
If you’re on the fence between a 15-year and a 30-year loan, some lenders offer terms in the middle, such as a 20- or 25-year mortgage term. There are even some companies with 10- or 40-year terms if you’re looking for even more flexibility. Ask your mortgage professional to run the numbers to see which term option is best for you.
Paying Off Your 30-Year Mortgage in 15 Years
“There are tricks and hacks to dramatically reduce interest over the loan term,” says Erik Katz, president and founder of Rustic Country Real Estate in West Point, California. “If you take a 30-year loan and pay a few extra hundred a month, you may pay that mortgage down in 15 years anyway.”
This way, if things ever get tight financially, you’re not locked into a higher payment. Just confirm that your lender doesn’t charge a prepayment penalty.
Refinancing
Starting off with a traditional 30-year term is best for many people. But if circumstances arise a few years into the mortgage that might allow you to refinance to a 15-year loan, such as a dramatic drop in interest rates, it could be worth exploring.
On the flip side, if you start out with a 15-year mortgage and the payments become difficult to manage, you can see if stretching it out into a longer loan term might help ease the financial pressure. Just be aware that doing so will mean paying more interest over the life of the loan.
15- vs. 30-Year Mortgage: How to Decide
Deciding between a 15- or 30-year mortgage comes down to finances and flexibility. Keep in mind that 30-year mortgages are far more common than 15-year loans for a reason: They are more affordable. The lower payment will give you more wiggle room, especially if your financial future is uncertain or your dream home wouldn’t be within reach with a 15-year mortgage.
On the other hand, a 15-year mortgage can offer savings if you have steady income to support your monthly payments and other expenses, including emergencies. “If the interest rate is a lot lower for the 15-year, that’s where I would advise to run the numbers,” says Katz.
Age may be a factor in your decision when weighing a 15- versus 30-year mortgage as well. “A 15-year mortgage could be a better option for those who are determined to pay off additional debts quickly, especially those who are preparing for an early retirement and want to minimize monthly payments,” says McDaniels.
A 40-year-old borrower, for example, could pay off a 15-year mortgage by age 55 while still owing on a 30-year mortgage through age 70.