So, you’re finally ready to buy a home, but 30 years seems like a long time to make mortgage payments. You want to pay off the debt as soon as possible, but you’re not sure what the downsides are to a shorter loan term.
The most common terms are 30 years and 15 years, though lenders may offer custom loan terms. The length of your mortgage affects your monthly payment and how much you pay in total interest — or the cost of your loan, minus fees — so you’ll want to choose carefully.
Here’s what you need to know about 15-year and 30-year mortgages before deciding:
- The Difference Between 15-Year and 30-Year Mortgages
- 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?
- Questions To Ask Before Choosing a Mortgage
- The Bottom Line: Is a 15-Year or 30-Year Mortgage Right for You?
The Difference Between 15-Year and 30-Year Mortgages
In general, a 15-year mortgage 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.
The amount you pay to take out a 15-year or 30-year mortgage also depends on whether your interest rate can change over the loan term. With a fixed-rate mortgage, the interest rate never changes. With an adjustable-rate mortgage, the interest rate may fluctuate. If it increases, you pay more interest. If it decreases, you pay less.
When you first start making payments, most of what you pay goes toward interest. Over time, more of your monthly payment goes toward the principal, which is the amount you borrowed to buy the house.
Paying off your loan in regular, equal installments is called amortization. An amortization schedule lays out how much of each monthly payment goes toward paying principal and how much goes toward interest. You can use a 15-year vs. 30-year mortgage calculator to compare amortization schedules and calculate costs for a 15-year and 30-year mortgage.
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 your monthly payment and total interest paid for a $320,000 mortgage at an interest rate of 4%, with 15-year and 30-year loan terms:
Costs for $320,000 Mortgage at 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 a 15-year loan term, your mortgage payment will cost $839 more per month compared to a 30-year term, but you’ll pay $123,922 less in interest.
Remember, however, that these figures cover just the mortgage. Homeowners also are responsible for paying property taxes, insurance, and possibly other fees, such as homeowners association dues.
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 mortgage term is 30 years. According to Freddie Mac, 90% of homebuyers choose a 30-year, fixed-rate mortgage. But that doesn’t mean it’s the best option for everyone.
Pros of a 30-year mortgage
Here are some benefits to a 30-year mortgage:
- Your monthly mortgage payment is lower.
- You can afford to buy a home sooner rather than later.
- You can get a larger loan, which often means affording a more expensive home.
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 shorter terms for the same monthly payment.
Cons of a 30-year mortgage
There are a few drawbacks to a 30-year mortgage:
- You’re charged a higher mortgage interest rate.
- You pay more interest over the life of the loan.
- You build equity — or the difference between your home’s market value and the amount you owe — more slowly.
Compared to shorter loan terms, you’ll keep paying interest for a longer period of time — which means you pay more interest overall with a 30-year mortgage. You also should expect to be charged a higher interest rate.
What To Expect With a 15-Year Mortgage
Another popular loan term is 15 years, which comes with its own pros and cons. Depending on your financial situation and goals, you may prefer to take out a 15-year loan.
Pros of a 15-year mortgage
Here are some benefits to a 15-year mortgage:
- Your mortgage interest rate is lower.
- You pay less total interest, which can help you save money.
- You build equity faster and fully own your home sooner.
Cons of a 15-year mortgage
Drawbacks to a 15-year mortgage include:
- You make higher monthly payments.
- You may not be able to borrow as much, which limits your homebuying options.
- It could take longer for you to be able to afford a home.
With a 15-year mortgage, you save money by repaying the loan more quickly at a lower interest rate. The trade-off is covering a larger monthly mortgage payment.
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.”
However, 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 may 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.
Related: Should I Refinance My Mortgage?
Questions To Ask Before Choosing a Mortgage
Before you select a mortgage term, there are some important questions to ask your lender to fully understand what you’re committing to.
Are there payment penalties?
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.
Are the fees negotiable?
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 their down payment.
Do I want to work with this lender?
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 don’t feel good about your lender or the terms of the loan. Buying a home is one of the biggest investments you’ll ever make, so it’s important to be satisfied. 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 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 loan 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.