Ever wonder if you should get a 15-year or a 30-year mortgage? Many homeowners and homebuyers are asking themselves that exact question.
Both options have pros and cons, but which one should you choose to get the best deal?
In this article, we will break down 15 vs. 30 years mortgages so that you can make a more informed decision!
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Before diving into the details of 15-year and 30-year mortgages, let’s first define what fixed rate means. Understanding this is the most important factor to consider when making your decision.
Fixed-Rate
With a fixed-rate mortgage, the interest rate and monthly payment stay the same for the entire duration of the loan.
In contrast, there is the variable or adjustable-rate mortgage (ARM), which has an interest rate that can change over time.
For most people, a fixed-rate mortgage is preferable. It provides stability and peace of mind knowing that your monthly payments will never increase.
Budgeting is easier since you’ll always know exactly how much you need to set aside each month.
Now that we’ve covered what fixed rate means, let’s get into the 15 vs. 30 years mortgage debate!
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Table of Contents
What is a 15-year mortgage?
Simply put, a 15-year mortgage is a loan that matures in 15 years.
The interest rate on a 15-year mortgage is usually lower than that of a 30-year mortgage. The payments, however, are higher.
With the shorter term, a 15-year mortgage will be paid off sooner. Less interest will need to be paid over the life of the loan.
This can be advantageous if you want to own your home free and clear and if you plan to move within the next few years.
What is a 30-year mortgage?
A 30-year mortgage is a loan that matures in 30 years.
The interest rate on a 30-year mortgage is usually higher than that of a 15-year mortgage, but the monthly payments are lower.
Since the 30-year mortgage has a longer term, you will pay more interest over the life of the loan.
However, your monthly payments will be more affordable, which can be helpful if you’re on a tight budget.
Now you know the basics of 15 vs. 30 years mortgages. It’s now time to decide which is right for you!
- Want lower monthly payments: go with a 30-year mortgage.
- Own your home free and clear faster: go with a 15-year mortgage.
- If you stay in your home for longer: opt for a 30-year mortgage. Doing so can help your monthly payments be more manageable.
To help you decide, we will review the math of 15 vs. 30 years mortgages. You’ll also see the difference in interest paid over time.
15-year vs. 30-year mortgage comparison
So what does the math say?
With a fixed-rate mortgage, the interest rate and monthly payment stay the same for the entire duration of the loan.
First, let’s assume a 20% down payment of $40,000.
15-year mortgage: ($200,000) at an interest rate of 3.4%
30-year mortgage: ($200,000) at an interest rate of 4.1%
With a 30-year mortgage, you’ll end up paying $73,848 more in interest over the life of the loan. But, your monthly payments will be lower at $773 rather than $1,136 with a 15-year mortgage.
With a 15-year mortgage, you will be debt-free on your house 15 years earlier. On the flip side, you will have $363 less per month.
To put it simply…
15-year mortgage: higher monthly payment, lower total interest paid, debt-free sooner.
30-year mortgage: lower monthly payment, higher total interest paid, stay in debt longer.
What can you do to make both options more favorable?
You can increase the downpayment above 20%. Let’s see what the math would look like if we double the down payment to 40% at $80,000
15-year mortgage: ($200,000) at an interest rate of 3.4%
30-year mortgage: ($200,000) at an interest rate of 4.1%
With a 30-year mortgage, you’ll end up paying $55,386 more in interest over the life of the loan. But, your monthly payments will be lower at $580 compared to $852 with a 15-year mortgage.
With a 15-year mortgage, you will be debt-free on your house 15 years earlier. You will have $272 less to spend per month though.
So, 15 years vs. 30 years… which one should you choose?
As you can see, there are pros and cons to both 15-year and 30-year mortgages.
The best way to decide is to look at your current financial situation. Ask yourself what makes the most sense for you.
Now that you know the math comparing the two options let’s break down the pros and cons of each mortgage decision.
We will also show you if you are ready to consider a 15-year or 30-year mortgage.
When to consider a 15-year mortgage?
There are a few key things to consider when thinking about whether a 15-year mortgage is right for you:
Your current financial situation: A 15-year mortgage may be a good option if you can afford higher monthly payments.
You’ll also need to have the extra cash on hand for a larger down payment. The 15-year mortgages typically require at least 20% down.
Your long-term goals: If you’re planning on staying in your home for more than 15 years or if you plan to sell within the next few years, a 15-year mortgage may not make sense.
On the other hand, if you’re looking to retire sooner or if you think there’s a chance you may move in the next few years, a 15-year mortgage could be a good option.
Your interest rate: This is a big one! If you can get a lower interest rate on a 15-year mortgage than on a 30-year mortgage, it may make sense to go with the 15-year option.
You’ll want to compare rates from multiple lenders to ensure you’re getting the best deal possible.
Remember that 15-year mortgage rates are typically 0.50% to 0.75% lower than 30-year mortgage rates.
15-Year Mortgage Pros
- You’ll save money on interest over the life of the loan
- You’ll own your home free and clear sooner
- Your monthly payments will be higher
15-Year Mortgage Cons
- Your monthly payments will be higher, which could be a strain on your budget
- If you need to sell your home before the 15 years is up, you may not recoup all of the money you’ve put into it (since you would have paid less interest overall)
30-Year Mortgage Pros
- Your monthly payments will be lower, which can help with cash flow on a tight budget.
- You’ll pay more in interest over the life of the loan, but it will be more manageable.
- If you need to sell your home before the 30 years is up, you may recoup more of the money you’ve put into it (since you would have paid more interest overall)
- You’ll have more flexibility in making extra payments or taking a break from payments if needed.
30-Year Mortgage Cons
- You’ll pay more interest over the life of the loan
- It will take longer to own your home free and clear
Use this information to weigh your options and decide which type of mortgage is right for you. Remember, there is no wrong answer – it depends on your unique circumstances.
Now let’s look at when you should consider a 30-year mortgage…
When to consider a 30-year mortgage?
There are also a few key things to consider when deciding if a 30-year mortgage is right for you:
Your current financial situation: If you can’t afford the higher monthly payments of a 15-year mortgage, a 30-year mortgage may be a better option.
Remember that even though your monthly payments will be lower, you’ll pay more in interest over time.
Your long-term goals: If you plan to stay in your home for longer than 15 years or if you think there’s a chance you may move within the next few years, a 30-year mortgage could make sense.
This gives you more flexibility than a 15-year mortgage and may save you money in the long run.
Your interest rate: Like with a 15-year mortgage, you’ll want to compare rates from multiple lenders to ensure you’re getting the best deal possible.
Remember that 30-year mortgage rates are typically 0.50% to 0.75% higher than 15-year.
15-year mortgages vs. 30-year mortgages – What’s The Difference?
The main difference between a 15 and a 30-year mortgage is the amount of time it will take to pay off your loan.
With a 15-year mortgage, you will pay less interest in the long run, but your monthly payments will be higher.
Conversely, a 30-year mortgage will have lower monthly payments, but you’ll end up paying more in interest over the life of the loan.
Which option is better depends on a few factors, such as how much money you have saved and your current interest rate.
If you can afford the higher monthly payments of a 15-year mortgage, it will save you a lot of money in the long run. However, if you’re not quite ready to commit to such a short loan term, a 30-year mortgage may be a better option.
If you’re unsure which mortgage is right, talk to your bank or financial advisor to get expert advice. They will be able to help you crunch the numbers and figure out what option makes the most sense for your unique situation.
Worst Case Scenarios
The chances of a worst-case scenario are rare. However, it is still helpful to know as many potential outcomes as possible.
These examples should not scare you from deciding but rather prepare and inform you.
Financial Difficulties: If you choose a 15-year mortgage and then experience financial difficulty halfway through the loan, you may have to sell your home or extend the loan term.
If you choose a 30-year mortgage and then experience financial difficulty halfway through the loan, you may be able to sell your home or refinance the loan to a 15-year mortgage.
This would provide some relief in terms of your monthly payments, but you would still be paying more interest over the life of the loan.
Job Loss: If you choose a 15-year mortgage and then experience job loss, you may have difficulty making your monthly payments
If you choose a 30-year mortgage and then experience job loss, you may be able to continue making your monthly payments for a while.
This will give you more time to find another job or come up with another source of income.
Death: If you die before the 15-year mortgage is paid off, your family will be responsible for making the remaining payments.
If you die before the 30-year mortgage is paid off, your family may be able to sell the house or refinance the loan to a 15-year mortgage.
This will depend on the housing market and their financial situation.
As you can see, there are real worst-case scenarios, and factoring these into your decision is important.
A mortgage is a big commitment, so understand all the risks and rewards involved before signing on the dotted line.
The Best Strategy For Improving The Outcome For Either Decision
By optimizing for these three factors below, you will improve the outcome of your 15 or 30-year mortgage.
If you can afford to put more money down, get a lower interest rate, and/or shorten the loan term, you will save even more money on your mortgage. Conversely, if you cannot afford to do any of those things, you may want to consider a 30-year mortgage.
Higher Down Payment: The more money you put down, the lower your total interest rate paid will be. Saving up and being patient can be offsetting.
However, if you are concerned about a tight monthly cash flow because of a high mortgage, you may consider paying more than 20%.
As you can see with the math we did together above; this will help lower your monthly mortgage expenses for both options.
You will also have some reassurance if you lose your full-time job sometime throughout the loan and can only come up with a part-time income.
A higher down payment can be seen as insurance for a loss of income that will make the monthly expenses less difficult to pay.
Lower The Interest Rates: It may be difficult to select your ideal interest rate for the loan. You can act when opportunities arise and are patient when rates are too high. Interest rates for mortgages can fluctuate between lenders and over time.
You want to get the best interest rate possible because this will directly impact your monthly mortgage payment, as well as the total amount of interest paid over the life of the loan.
Shorten The Loan Term: If you can afford it, you should try to shorten the loan term. This will result in higher monthly payments, but you will save money on the total interest paid over the life of the loan.
However, remember that you cannot always choose your loan term; it may be determined by the lender or based on how much money you can put down.
No matter which type of mortgage you choose, 15 years or 30 years, be sure to consider the following:
- How much can you afford for a down payment?
- What is the interest rate and how does it compare to other offers?
- How long do you want the loan term to be?
Considering these things, you can make the best decision for your financial situation.
Optimizing for these three factors ensures you are getting the best possible deal on your 15 or 30-year mortgage.
You have more ways to improve your financial well-being beyond just the two options of the loan length when it comes to securing a mortgage.
Conclusion
Deciding on a mortgage is no easy decision. It can be daunting to commit to multiple decade-long financial obligations. But with this guide, you can make the best decision for your desires and circumstances.
Remember to consider your financial situation, long-term goals, and interest rate when deciding.
15-year mortgages and 30-year mortgages both have unique benefits and drawbacks, so take your time to weigh your options before you make a final decision.
If you’re looking for lower monthly payments, go with a 30-year mortgage. If you want to repay your loan sooner, go with a 15-year mortgage.
It all depends on your current financial situation and long-term goals.
When in doubt, talk to an expert! Your bank or financial advisor can help determine which mortgage is right for you.
Disclaimer:
We hope the information in this article provides valuable insights to every reader but we, the Biesingers, are not financial advisors. When making your personal finance decisions, research multiple sources and/or receive advice from a licensed professional. As always, we wish you the best in your pursuit of financial independence!
