The Pros and Cons of 15-Year and 30-Year Mortgages | About Us (2024)

FAQs

The Pros and Cons of 15-Year and 30-Year Mortgages | About Us? ›

Most homebuyers choose a 30-year fixed-rate mortgage, but a 15-year mortgage can be a good choice for some. A 30-year mortgage can make your monthly payments more affordable. While monthly payments on a 15-year mortgage are higher, the cost of the loan is less in the long run.

With a 30-year mortgage, you make 360 monthly payments. Because you're paying a smaller portion of the amount you borrowed (or principal) each month, your monthly payments are lower than with a 15-year loan. However, since you pay interest for twice as long, the total paid will be much higher than with a 15-year loan.

The 15-year mortgage has some advantages when compared to the 30-year, such as less overall interest paid, a lower interest rate, lower fees, and forced savings.

It's half the length of a 30-year mortgage, which means the lender will receive the entirety of the amount they loaned you in half the time. This quicker payback is generally less risky for lenders and comes with less inflation, so they typically offer a lower interest rate on 15-year mortgages.

People with a 15-year term pay more per month than those with a 30-year term. In exchange, they are given a lower interest rate. This means that borrowers with a 15-year term pay their debt in half the time and possibly save thousands of dollars over the life of their mortgage.

Con: May Be Harder To Qualify

Since a 15-year mortgage requires you to make larger monthly payments, lenders want to be sure that you have the ability to repay the loan. Because of this, a 15-year mortgage could be harder to qualify for than a 30-year mortgage.

Choosing a 25-year term will be cheaper in the long run, but make sure you can afford the higher monthly payments. If a shorter term makes repayments too expensive, consider the longer 30-year term.

Some people get a 30-year mortgage, thinking they'll pay it off in 15 years. If you did that, your 30-year mortgage would be cheaper because you'd save yourself 15 years of interest payments. But doing that is really no different than choosing a 15-year mortgage in the first place.

A 30-year loan is best if …

Your repayment term is longer with a 30-year loan, which spreads out your mortgage payments over a greater period of time and makes them more affordable. You want more room in your budget.

A 15-year mortgage means larger monthly payments, but a lower rate and substantial savings on interest. A 30-year mortgage gives you a more affordable monthly payment, but expect higher borrowing costs overall. You can also take out an interest-only mortgage or pay your loan off early to maximize interest savings.

Is 50 too old for a 30-year mortgage? ›

If you can demonstrate an ability to repay the loan before you're 75 years old, they will consider your application no matter your age! For example, if you needed to borrow $300,000 and were 50 years old, the standard 30-year mortgage term could be reduced to 25 years and your loan would be approved.

For a 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% can cut the term in half to 15 years with only a slight change in the monthly payment from $805 to $817.

The average length of a mortgage is 30 years, but that's not the amount of time that most borrowers will keep the loan. Homeowners only stay in a home for eight years on average, and many refinance their home loans. So most folks will sign up for a 30-year mortgage but keep it for a far shorter time.

If you have the financial bandwidth to make higher monthly payments, a 15-year mortgage is likely to have a more competitive interest rate than a 30-year loan. As long as you're able to balance other financial priorities and make payments on time, it's a strategic move.

If you originally got a 15-year mortgage but find the payments challenging, refinancing to a 30-year loan can lower your payments by as much as several hundred dollars each month. Conversely, if you have a 30-year mortgage, a 15-year term can help you build equity much faster.

Con: You'll Pay A Little More Initially

Fixed-rate mortgages have higher rates than the introductory rates adjustable-rate mortgages (ARMs) offer. You pay a bit more in exchange for the peace of mind provided by a low rate that's locked in the entire time you're paying off the loan.