15-Year vs. 30-Year Mortgage

When you decide to become a homeowner, you’ll likely need to take out a mortgage to purchase your new home. Knowing you’ll need a mortgage to finance your home is an easy decision to make but deciding which mortgage is right for you can be a harder decision.

One of the countless decisions you as a prospective homebuyer will make is picking between a 15-year vs. 30-year mortgage. From the names alone, it may be hard to tell which one is the better option. Knowing the differences between the two can help you decide which plan would be best for you.

Read below to know more of what you’ll want to consider when deciding which mortgage is best for your financial plan.

REPAYMENT TIMELINE

The main difference between a 15-year and 30-year mortgage is the amount of time it takes to repay your loan in full. This is also known as the loan term. Loan terms come in a variety of lengths but 15-year and 30-year mortgages are the most common.

The loan term of a mortgage can affect other aspects of your mortgage such as interest rates and monthly payments. A 30-year mortgage may have smaller monthly payments, but you could end up paying more due to interest over the 30 years. With a 15-year loan, you could save a significant amount of money in interest, but have higher monthly payments.

AFFORDABILITY

When researching, decide how much you can afford for a monthly mortgage payment. Consider the interest rates you expect to receive on a 15 vs. 30-year mortgage then calculate your potential monthly payment. Remember to include real estate taxes and homeowner’s insurance within your monthly budget (and all other monthly payments and debts).

Your monthly mortgage payment will depend on your home price, down payment, loan term, property taxes, homeowners insurance, and interest rate — which is highly dependent on your credit score. You can run the numbers yourself using our mortgage calculator to get a sense of what your monthly mortgage payment could end up being.

If you can easily afford the monthly payment of a 15-year mortgage, go with that option for the promise of a shorter loan term. If you don’t feel comfortable making the payment, the 30-year term may be your better choice.

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KNOW YOUR GOALS

Thinking long-term and knowing your goals for the future will be a strong indicator of the mortgage that is right for you.

The 15-year mortgage may be best if you want to spend the least amount on interest, have a generous income, and have a reliable amount in savings. With a 15-year mortgage, your income would need to be sufficient enough to cover higher monthly mortgage payments plus other living expenses. Ample savings are important to serve as a buffer in case of emergency too!

On the other hand, a 30-year mortgage may be right if you’re seeking stable and affordable monthly payments or wish for more flexibility in saving and spending your money over time. The longer loan term may also be the better option if you plan on purchasing a property you couldn’t normally afford to repay in just 15 years.

Something to keep in mind when comparing a 15-year vs. 30-year mortgage is your current employment and whether that could change. Do you have at least six months of emergency savings set aside in case of loss of your job? If for any reason you could see yourself missing payments on the higher rates of a 15-year mortgage plan, look toward a 30-year mortgage.

THE BEST OF BOTH

Want the best of both worlds? You can take out a 30-year loan and pay extra each month if the higher 15-year payment is too intimidating. Use our calculator to figure your payments as if you have a 15-year mortgage, then make that higher payment.

You can still have the goal of paying off your mortgage in 15 or 20 years, but this option can be more forgiving if life happens and you don’t meet that goal. You should also check your mortgage contract to make sure that is allowed without penalty. This strategy will get you out of debt sooner, and you’ll pay less interest than you would if you were to stretch payments out over the full 30 years.