If you’re currently shopping for a home, you may be wondering if a 15-year or 30-year mortgage is a better option for you. There are pros and cons to both. While a 30-year mortgage generally comes with lower monthly payments, a 15-year mortgage might save you money in the long run.
Of course, every borrower has different needs, and you’ll want to consider which path is best for your situation. Get a head start by educating yourself on 15-year vs. 30-year mortgages, their pros and cons, and how they differ.
15-year vs. 30-year mortgage: How to compare
The loan term you choose will likely have a big impact on how much you pay for your mortgage. The length of a mortgage term typically plays a role in the interest rate the lender offers, your monthly payment amount, and how much you pay in interest over the life of the loan.
As you’re comparing 15-year and 30-year mortgages, pay particular attention to these three things: monthly payment amounts, loan term, and total interest charges.
Monthly payment amounts
With a 15-year mortgage, you repay your loan over 180 months. That means your monthly payments will typically be higher than they would be with a 30-year mortgage, which you repay over 360 months. Here’s a quick look at how payments might differ based on your loan term.
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Note: These monthly payments don’t include taxes or private mortgage insurance, which are generally factored into total monthly mortgage payments.
A 15-year home loan helps you become mortgage-free in half the time of a 30-year mortgage, which could be a priority depending on your personal situation. For example, if you’re purchasing a home at age 50 and plan to retire at 65, it could make sense to get a 15-year loan to be payment-free when you are no longer in the workforce.
Total interest charges
The amount of interest is another important difference. With a 30-year mortgage, you’re paying interest for twice as long as you would with a 15-year loan. This could mean you pay significantly more in interest in the long run.
For example, let’s say you’re considering purchasing a $250,000 house and you plan on making a $50,000 down payment. Your lender offers you a $200,000 mortgage loan with an interest rate set at 3%. With a 15-year term mortgage, you’ll pay $48,609.39 in interest over the life of the loan. But, with a 30-year loan at 3% interest, the amount of interest you’ll pay jumps significantly to $103,554.90.
From these examples, we can see that a 30-year loan provides a more affordable monthly payment, while a 15-year mortgage saves you more money over the life of the loan. It’s also important to note that interest rates for 15-year mortgage loans are generally lower than rates for 30-year mortgages, though this varies depending on your situation and the lender you choose.
15-year mortgage: Pros and cons
If you’re wondering how to get a loan with the lowest interest rate possible, a 15-year mortgage could be your best option.
Pros of a 15-year mortgage
- Get a better rate: You can typically get a lower interest rate on a 15-year mortgage because the shorter time frame exposes a lender to less risk.
- Build equity faster: Because a 15-year mortgage typically features a lower interest rate and a higher monthly payment amount, you could pay down the balance and build home equity faster.
- Save money on interest: With lower interest rates and a shorter repayment period, you’ll generally pay less in interest over the loan term, reducing the total cost of your mortgage.
Cons of a 15-year mortgage
- Higher monthly payments: Because you are squeezing your payments into a shorter term, monthly payments are typically higher than they would be with a 30-year term.
- Smaller loan amount: The higher monthly payments that come with a 15-year loan can make your budget appear tighter on paper. As such, the loan you qualify for might be smaller than what you’d qualify for with a 30-year mortgage.
- Less room for error: With higher monthly payments, you might be at greater odds of default and foreclosure if you suddenly lose your job, become ill, or face another unexpected event.
- Possible trade-offs: Since more of your monthly budget will be going toward your mortgage payment, you might have fewer available funds to use for vacations, your emergency fund, and investments.
30-year mortgage: Pros and cons
According to mortgage-guarantor Freddie Mac, nearly 90% of all homebuyers choose a 30-year fixed-rate mortgage over other mortgage products due to its affordability and flexibility.
Here are the primary pros and cons of a 30-year mortgage loan:
Pros of a 30-year mortgage
- Lower monthly payments: By stretching out your loan payments over a longer repayment period, your payments might be lower than they would be with a 15-year mortgage loan.
- Larger mortgage: Lower monthly payments mean less of your budget is going toward your housing costs. With “extra” money in your budget, lenders might approve you for a larger mortgage.
- Financial flexibility: With less money devoted to your mortgage, you could apply more funds toward savings, investing, vacations, or other financial goals.
- Larger tax deduction: The Internal Revenue Service (IRS) allows homeowners to deduct mortgage interest from their taxes. In the early years of a mortgage loan, most of your monthly payment goes toward interest on the loan. This means you could receive a substantial tax deduction.
Cons of a 30-year mortgage
- Higher interest costs: The longer your loan term, the more you’ll generally pay in interest.
- Higher interest rate: Lenders assign higher interest rates to mortgage loans with longer loan terms because their risk is spread out over a longer period.
- Build equity slower: Much of your loan payment will go toward the loan interest, especially in the early years of your loan term. As such, it could take longer to pay off your principal balance and build equity in your home.
- Possibility of overborrowing: Because loan applicants might qualify for a bigger loan amount with a 30-year loan term, they might be tempted to purchase a home that pushes their budget to its limits. It's generally a good idea to leave room in your budget for unexpected costs.
15-year vs. 30-year mortgage: How to decide which is best
The better loan for you between a 15-year vs. 30-year mortgage will likely depend on your financial situation. If you’re close to retirement age, a 15-year mortgage might be a good fit for you. By contrast, if you’re a first-time homebuyer, you could find it easier to qualify for a 30-year mortgage loan.
If you’re still not sure, consider asking your lender for an amortization schedule for a 30-year mortgage. The schedule will break down how much you would pay each month to own the home outright in 15 years, 20 years, or any time frame you wish. With a bit of planning, you might be able to pay off your home early without being locked into a higher payment.
No matter your situation, your cash flow is likely going to be an essential consideration. Online calculators can be beneficial tools to make sure a potential loan fits your budget. Some mortgage calculators even allow you to enter figures for your property tax, private mortgage insurance (PMI), home insurance, monthly homeowners associations (HOA) fees, and other costs. Including as much information as you can for both 15-year and 30-year mortgages can give you a more accurate picture of what your payment might be with either loan term.
Before you get preapproved for a mortgage, compare the 15-year and 30-year loan cost breakdowns — including your monthly payment amount and total interest costs — to determine the best loan term for you.
Which is better, a 15-year or a 30-year mortgage?
The better option between a 15-year vs. 30-year mortgage depends on your situation and goals. If you’re interested in saving money over the long term, a 15-year mortgage might be better because you’ll pay significantly less interest. However, if it’s affordability you’re after, a 30-year mortgage could be your best bet, as stretching your payments over 30 years can reduce the cost of your monthly mortgage payment.
It's also worth noting that you aren't necessarily locked into a certain loan for the long term. Refinancing your mortgage could be a good option to potentially get a better interest rate and lower your loan costs, too.
What happens if you make one extra mortgage payment a year?
The primary benefit of making one extra mortgage payment a year is that you could pay off your loan balance several years sooner. The amount of time you could knock off your loan term depends on several factors, including your loan amount and the length of your loan term. Of course, the more extra payments you can make, the sooner you might pay off your loan.
Is paying off a 30-year mortgage in 15 years less expensive than getting a 15-year mortgage?
Paying off a 30-year mortgage in 15 years could save you a tremendous amount in interest charges. Generally, this path is not less expensive than getting a 15-year mortgage, though, simply because the interest rate on a 15-year mortgage is typically lower than the interest rate on a 30-year mortgage.
The bottom line
If your goals are to get the lowest possible interest rate and save the most on your home’s financing, a 15-year mortgage could be your best bet. On the other hand, if you want the flexibility to handle life’s ups and downs, a 30-year loan could be the better choice.
Whether you choose to go with a 15-year or 30-year mortgage, it’s essential to shop around to find the best interest rate and loan terms. To help simplify the process, check out our picks for the best mortgage lenders.