So, you’re ready to buy a home, but 30 years seem like a long time to make mortgage payments.
The length of your mortgage repayment schedule affects the size of your monthly payment and how much you pay in total interest, which is the cost of your loan minus fees. In general, a longer loan term means lower monthly payments but higher total costs, while a shorter loan term means higher monthly payments and lower total costs.
The most common terms are 30 years and 15 years. Which is right for you depends on your financial situation and goals. Here’s what you need to know about 15-year and 30-year mortgages before deciding:
- 15-Year vs. 30-Year Mortgage: How Your Loan Term Affects Costs
- What To Expect With a 30-Year Mortgage
- What To Expect With a 15-Year Mortgage
- Is It Better To Take Out a 15-Year or 30-Year Mortgage?
- Why Pay Off a 30-Year Mortgage in 15 Years?
- Questions To Ask Before Choosing a Mortgage
- The Bottom Line: Is a 15-Year or 30-Year Mortgage Right for You?
15-Year vs. 30-Year Mortgage: How Your Loan Term Affects Costs
Differences Between a 15- and 30-Year Mortgage
|15-year mortgage||30-year mortgage|
A 15-year mortgage generally costs less overall but comes with higher monthly payments. A 30-year mortgage offers lower monthly payments, but you’ll pay more interest over time because it charges a higher interest rate and takes twice as long to repay.
“A longer mortgage means more time in debt, but a shorter mortgage means less disposable income,” says Lyle Solomon, a bankruptcy attorney at Oak View Law Group in Rocklin, California.
To help calculate costs for a 15-year and 30-year mortgage, you can use a mortgage comparison tool.
15-year vs. 30-year mortgage example
Let’s say you want to buy a $400,000 home, and you’ve saved up $80,000 to make a 20% down payment.
Here’s a snapshot of the costs for a $320,000 mortgage with 15-year versus 30-year terms, at a 4% interest rate:
Costs for a $320,000 Mortgage at a 4% Interest Rate
|15-year loan term||30-year loan term|
|Monthly payment: $2,367||Monthly payment: $1,528|
|Total interest paid: $106,060||Total interest paid: $229,982|
|Total cost: $426,060||Total cost: $549,982|
With the 15-year term, your mortgage payment would cost $839 more per month compared with the 30-year term, but you’d pay $123,922 less in interest.
You can play around with our mortgage calculator to estimate the monthly payment, interest rate, and total interest paid for your personal situation.
What To Expect With a 30-Year Mortgage
The most popular loan term is 30 years, but that doesn’t mean it’s the best option for everyone.
With more time to repay a 30-year loan, your monthly payment can be more affordable. This could give you breathing room in your budget to continue paying your mortgage even if your income unexpectedly drops. You may also be able to purchase a more expensive house with a 30-year mortgage because you can borrow more with a 30-year term than with a shorter term for the same monthly payment.
However, compared to a shorter loan term, you’ll keep paying interest for a longer period — which means you pay more interest overall with a 30-year mortgage. You also should expect to be charged a higher interest rate.
Pros and cons of a 30-year mortgage
30-Year Mortgage: Pros and Cons
|Benefits of a 30-year term||Drawbacks of a 30-year term|
|Lower monthly payment.||Higher interest rate.|
|Can afford to buy a home sooner.||More expensive overall.|
|Larger loan amount available.||Build home equity more slowly than with a 15-year loan.|
What To Expect With a 15-Year Mortgage
Another popular loan term is 15 years. Depending on your financial situation and goals, you may prefer to take out a 15-year mortgage.
Some benefits to a 15-year term include lower costs and accumulating equity faster compared to a loan with a longer term. The trade-off is you need to cover a larger mortgage payment every month, which leaves less room in your budget for other things. This could also make it difficult to afford a more expensive home.
Pros and cons of a 15-year mortgage
15-Year Mortgage: Pros and Cons
|Benefits of a 15-year term||Drawbacks of a 15-year term|
|Lower interest rates.||Higher monthly payment.|
|Cheaper overall cost.||May take longer to afford a home.|
|Build equity more quickly than with a 30-year loan.||Lower borrowing limit.|
Is It Better To Take Out a 15-Year or 30-Year Mortgage?
There’s no one-size-fits-all rule that applies to choosing a mortgage term. It comes down to your goals and financial situation, as well as where you are in your life.
“If you are early in your career or expecting a family, it may be more beneficial to spring for a 30-year loan on a larger house,” Solomon says. “This makes a house payment more manageable if (you are) looking at homes on the more expensive side.”
You may benefit from having a shorter mortgage term if you can afford the higher monthly payments. A 15-year term helps you pay off the loan at a faster rate and save a lot of money, according to Solomon.
At the same time, while a 15-year mortgage could help you save more money overall, it also can be a high-pressure commitment that leaves you with less cash for other things.
“If money is tight or you face any degree of uncertainty in your job, a 15-year loan can cause significant issues if you lose work,” Solomon says.
One strategy is to choose a 30-year mortgage but make extra payments toward the principal, which can knock years off your term. You won’t be pressured by the high monthly payments that come with a 15-year mortgage, and you’ll pay less total interest than with standard payments on a 30-year loan.
Why Pay Off a 30-Year Mortgage in 15 Years?
Some borrowers choose to treat their 30-year mortgage like a 15-year loan. You can do this by making additional payments or by increasing the amount you pay each month.
This option is appealing because paying off your loan sooner reduces interest charges and helps you build equity more quickly. And with a 30-year term, the required monthly payment is lower than it would be with a true 15-year mortgage, giving you the flexibility to pay less when you need to.
A drawback of this strategy is that 30-year mortgages usually have higher interest rates than 15-year loans. Making extra or higher payments also means that money can’t be used for other purposes, such as investing.
Questions To Ask Before Choosing a Mortgage
Before you select a loan term, there are some important questions to ask to fully understand what you’re committing to.
Your lender may charge a fee if you repay your mortgage early. But if your 30-year loan doesn’t have a prepayment penalty, then you can pay it off more quickly without the pressure of a 15-year loan. Even just a little here and there when you have extra cash can help chop down your principal balance and reduce the total amount of interest you’ll pay. So, be sure to ask if your mortgage has a prepayment penalty before you close.
In a home purchase, closing costs are inevitable — but that doesn’t mean those fees are set in stone. Don’t be afraid to negotiate with your lender to lower some of the costs of your mortgage.
For example, lenders may allow you to buy discount points, which reduce your interest rate for an upfront fee.
You also can ask about lender credits, which work in the opposite way. With lender credits, you lower your closing costs by getting charged a higher interest rate. Even though that means paying more overall, it’s an option for homebuyers who need help covering closing costs after saving up for a down payment.
Your connection to your mortgage lender is going to be a long-term business relationship, especially if you choose a 30-year mortgage. You shouldn’t commit to a mortgage if you aren’t comfortable with your lender or the terms of the loan. Remember, you can shop around for lenders before making a final decision.
The Bottom Line: Is a 15-Year or 30-Year Mortgage Right for You?
When you’re deciding how many years your mortgage will last, think about which loan term makes the most sense for your situation and goals. If you want to pay less each month to keep your mortgage from pressuring your budget, then a 30-year term might be the logical path forward. But if you can comfortably afford a higher monthly payment, then you can save on total costs with a 15-year mortgage.
T.J. Porter contributed to the reporting of this article.